International Finance assignment IBC program spring 2018 “Transavia”

The goal of the assignment is to select relevant financial information and making computations in
Excel, based on the information and questions below.

You have to work out the assignment in groups of at least two and maximum three students. Please
take a look weekly at the portal for essential (additional) information and remarks about the
assignment.

During the assignment, you are able to use consulting time. Thus there is a schedule on my
desk. Please note, you have to write in at least two days before!!
Furthermore, I will reflect to the discussed issues during lessons, so if you have any questions, please
take you minutes of the lessons with you to the consulting hours!

Introduction
As a result of a survey, Transavia (part of KLM-Air France group) wants to fly to a new destination
from Eindhoven Airport to Madrid for three times a day (= six single flights a day). They want to buy a
new airplane and will fly 7 days per week to the new destination with the same airplane.

You can identify the purchase of a new airplane as an investment. The Financial Chief Officer (CFO)
has collected the most necessary information and questions, which are necessary for judging the
investment.

In the table below, you can find the questions. For every question, you have to create a new sheet
with the short name. You follow the instructions for every single question and compute the right
answers. The computations have to build up on a dynamic way. As a result, by changing one or more
variable data, there will be automatically show up new results! Furthermore, the work out of a question
must be based on a structured way of data collection, create the computations and create crystal-clear
answers! Thus, I want to see how you have made the computations (complete with relevant data) and
also I want to see labels at the top of columns or rows.

Assignment

Question (tab) TAB Content

Short name
Excel
0. Members 0. M Group members, student numbers.
1. Data Processing 1.DAT Process all required data for the other question structured in
the sheet. Make necessary calculations. Refers for all other
questions (to compute) to this sheet. But repeat necessary
information on every sheet and make -if necessary-
computations between.
2. Economic Lifetime 2.ELT 1 A) Calculate the economic lifetime of the A320 (based on
relevant flying hours/years).

After 10 years there is a new airplane on the market (with

the same specifications), the price of each flying hour will
be € 2.200.

Because there is a new airplane with a lower cost price

for each working unit, the table of residual value must be
validated with 10% less residual value at the end of each
year.

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D.O.S. Tettero ICF-IBC program spring 2018
 B) What would be your advice? Purchase the new airplane?
Which year would be the best moment to purchase the
new airplane?

C) After purchasing the new airplane, what are the total

losses as a result of the introduction and purchase the
new airplane?
2.ELT 2 A) Calculate the economic lifetime of the Boeing 737-400
(based on relevant flying hours/years).

After 10 years there is a new airplane on the market (with

the same specifications), the price of each flying hour will
be € 2.200.

Because there is a new airplane with a lower cost price

for each working unit, the table of residual value must be
validated with 10% less residual value at the end of each
year.

B) What would be your advice? Purchase the new airplane?

Which year would be the best moment to purchase the
new airplane?

C) After purchasing the new airplane, what are the total

losses as a result of the introduction and purchase the
new airplane?
3. Cost Price 3.CP First you have select the most attractive airplane!
Now we will continue with calculations based on
Economic Lifetime question 2A! Thus, we will use the
Economic Lifetime as a starting point.

Transavia wants to have insight in the cost prices.

Compute the requested cost prices in a smart table.
A) Compute the total integrated cost price for one full year.
B) Compute the integrated cost price for one day.
C) Compute the cost price for one flight.
D) Compute the cost price for on chair per flight. (hint: use
the average occupancy).
4. Differential Costs 4.DC The average sales price of each single ticket is € 95,00.
In this case there are no other earnings like luggage or
special chairs etc.
A) Calculate the yearly profit.
B) Fontys University wants to pay maximum € 50,00 for
extra tickets for their students. This option fits into the
free occupancy. Should Transavia accept this
opportunity? Approve with a calculation.
C) Calculate the yearly profit under the condition that the
occupancy will increase up to 95% (total).
5. Profit and Loss 5.PL We continue with the outcome of 4A.
Present understand questions in a smart overview
including totals over the ELT-period.
A) Compute the Profit and Loss account based on ICP for
the number of ELT years. Not necessary to separate the
ICP-accounts!
B) Compute the Profit and Loss account based on the real
transaction costs.
C) How can you check the answer under A) and B) are
probably right?
D) When we want to create a timeline for investment
analyses, which P&L do we need A) or B), explain why.
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D.O.S. Tettero ICF-IBC program spring 2018
 6. Cash Flow 6.CF A) Compute the Cash Flow statement for the Economic Life
Time period, based on the indirect way (P&L). See also
the shoe factory case! Please note, the book value of the
airplane will be identified as a (residual) Cash Flow.
B) How can you be sure that your Cash Flow statement is
probably right?
7. Investment Rating 7.IR Compute, based on the Economic Life Time ‘period’ and
based on the cash Flows of question 6A:
A) Payback time
B) ARR
C) Economic payback period (8%)
D) NPV (8%)
E) IRR
F) Annuity (8%)
8. Evaluation 8.Eva Discuss all the results and create an advice for the board of
Transavia.
Please take also a look to other issues for the company as
total!
Or other solutions…feel free to think outside the standard
route map!
Is a required rate of return of 8% acceptable? Please explain
why!

Submission date:
Delivery the complete assignment at the latest Monday May 14th before 24.00 by
using the portal and separate an email d.tettero@fontys.nl , see also instructions
on the portal!

Retake: at the latest Friday June 8th before 24.00 by using the portal and a
separate email.

Please note. A retake means also a new casus!

Other deliver restrictions:

The excel sheet must consist the following description.

Coursecode-lastname,studentnumber-lastname,studentnumber-etc…
Courscode ICF (IBC): 01BHIBICF

For example:
01BHIBICF-Green,12345678-Trump,45362718-etc

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D.O.S. Tettero ICF-IBC program spring 2018
Additional information

The new airplane will be a new Airbus A320 or Boeing 747-300, both with a capacity of 200
passengers.

Specs Purchase Airbus A320

Purchase price of the A320 will be € 85.000.000
The depreciation policy of Transavia is to follow the actual residual value.
Maximum technical flying time 180.000 hours, then the airplane has to be demolished.

Table with detailed information of the Airbus A320:

By doing the maintenance, they cannot fly with their own airplane, so they have to rent another
airplane for € 50.000 each day (excluding fuel), see the table below for the numbers of days. Please
note, the costs of rent are additional to the all other standard costs in the table! In addition to the
information below, the fixed insurance costs will be € 175.000 yearly for the airplane.

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D.O.S. Tettero ICF-IBC program spring 2018
Specs Purchase Boeing 737-400

For the Boeing 737-400 the purchase price will be € 75.000.000

They have to use a straight-line depreciation schedule for 20 years, there is none residual value.
During the lifetime, the fuel consumption will be 2.800 litre each flying hour. The insurance costs will
be € 25,00 for each flying hour. During maintenance they have to rent another airplane for 10 day’s
every year. The general maintenance costs are budgeted at € 1.200.000 each year.

Other specs for both airplanes

The average flying time from Eindhoven to Madrid is 2 hours 45 minutes.

Yearly flying hours are based on 365 days of operation per year.

The price of 1 litre fuel (Kerosene) is € 0,60

Every departure or arrival cost € 250,00 for air control, every day six single flights, is twelve times
every day. The license costs to fly to Madrid is € 900 for each arrival. The standard main port will be
Eindhoven, therefor the yearly fixed costs are € 185.000 yearly. The airport taxes for each passenger
(service and security) will be € 17,50 for each departure.

The crew of an A320 or Boeing 747-300 exists of 2 pilots and 3 stewards. To flight a full year, we need
yearly 10 pilots and 9 stewards.
The yearly (average) salary (all in) of a pilot is € 150.000
The yearly (average) salary (all in) of a steward is € 60.000

KLM-Air France group send yearly -for every single airplane- an invoice of € 90.000 to Transavia for
covering Global Group overhead costs.

The average occupancy of all flights will be 80%.

Every amount is excluding VAT (Value Added Taxes)

Transavia uses a required rate of return of 8% for all their investments.

The Income Taxes are 20%.

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D.O.S. Tettero ICF-IBC program spring 2018