Fly - by - Night Airlines

Topics: Net present value, Cost, Internal rate of return Pages: 9 (2644 words) Published: August 28, 2010
Page 1.0 Executive Summary 2

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Case Study 1 (Simpson and Selph LTD) Introduction Question 1 Question 2 Question 3 Case Study 2 (Fly – by – Night Airlines) Introduction Question 1 Question 2 Question 3 Question 4 Question 5 Question 6

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Conclusion and Recommendation






Declaration by Student




This assignment consists of two case studies, the Simpson and Selph Ltd and the Fly – by – Nights Airlines. Case Study 1: The Simpson and Selph Ltd, a small carpet manufacturing company located in Macon, Georgia. The Simpson and Selph Ltd are faced with a replacement of their carpet – binding machine. The Machine to be replaced was purchased five years ago and has depreciated to zero. They have two carpet – binding machines to choose from, the Harley Model, same brand they are replacing and the Davidson. Brian Douglas, a corporate financial analyst for Simpson and Selph Ltd is charged with evaluating the replacement of a carpet – binding machine. They have two sets of the Harley and the Davidson. Brian Douglas needs to do a financial analysis to consider and choose the appropriate machine for the company. Brian must advise on what machine to be bought that would be a more viable option. Case Study 2: The Fly – by – Night Airlines, a major commercial air carrier offering passenger service between most large cities in the United States. One of its profitable routes is between Los Angeles and New York. Due to the intense competition on this route, Fly – by – Night Airlines considers upgrading the quality of the fleet of Aircraft used on the Los Angeles to New York route. James “Red” Baron is a supervisor of transcontinental operations for Fly – by – Night Airlines. As it has in the past, Fly – by – Night Airlines plans to purchase all its new planes from Puddle Jumper Aircraft Company. At the moment, Puddle Jumper is marketing three aircrafts, the old reliable PJ-1, the soon to be introduced PJ-2 and PJ-3, the technologically advanced and is still on design. The problem is that to get the other aircrafts, you Page 1 of 17

need to order today and the delivery will be later. Fly – by – Night is very interested in the newer models (PJ-2 and PJ-3) because they are more fuel efficient and less polluting, requires less maintenance and much quieter than the old PJ-1. James “Red” Baron needs to do a financial analysis to decide to order the new aircrafts or not for the Fly – by – Night Airlines company. James must advise on whether to order the newer aircrafts to be bought that would be a more viable option.

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Manufacturing companies have a challenge of having a need to purchase equipment that will be used to increase production and produce the required product. The equipment bought has life-cycle when they will have no value at all but still producing the product. The companies that manufacture the equipment have a challenge to produce newer version of equipment that when compared to the old model can produce more using less in everything i.e. time, power, labour etc. Brian Douglas had to evaluate whether it is worthwhile to replace the existing machine with the new advanced models that will increase production and revenue. When considering replacing equipment, there are restrictions that must be taken into consideration, Infrastructure, Capital Funding, Competition. Both New Machines will increase revenue. In Budgeting, decisions are taken for replacing equipment after comparing asset replacement options and take into account the restrictions stated above. For this case study, we need to make a decision on two options. We will use an internal rate of return (IRR), Net Present Value (NPV), Payback Period and the Profitability Index (PI). We need to optimise the effect of...
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