Corporate Fin Mgt NDLM.PDF

Insurance cost (1 percent of cost) : Rs. 0.798 million per annum

Running and Maintenance costs

1 - 4 years : Rs.2.5 million

5 - 8 years : Rs.5.0 million

Manpower Costs

Pilots (each year for 1-4 years)

Rs.40, 000 per month (2 X 40,000 X 12) : Rs.0.96 million per annum

5 - 8 years (Rs.44, 000 per month)

(2 X 44,000 X 12) : Rs.1.056 million per annum

Assumptions: Salary is expected to increase by 10 percent after 4 years both for pilots and
ground staff.

Ground staff

1 - 4 years (Rs.15, 000 per months each)
(2 X 15,000 X 12 : Rs.0.36 million per annum
5 - 8 years (Rs.16, 500 per month each)
(2 X 16,500 X 12) : Rs.0.396 million per annum

Total Manpower Costs

1 - 4 years: (0.96 + 0.36) : Rs.1.32 million per annum
5 - 8 years: (1.056 + 0.396) : Rs.1.452 million per annum

Minimum Required Rate of Return: : 15 percent

Solution

Financial Analysis of Decision of Buying New Helicopter

(A) Total incremental cash outflows:
Cost of helicopter: Rs.79.8 million

(B) Total incremental cash inflows after taxes:

Cash inflow Period 1-4 years Period 5-8 years
(Rs. million) (Rs. million)

Savings in hiring helicopter 21.6 21.6