You can work on this assignment individually or in a group of up to 4 people. If you choose to work as a group, your group should hand in one assignment and you will all receive the same grade. This assignment counts for 5% of your final course grade.
At a minimum, please answer the following questions. Make any assumptions you feel are necessary to provide a complete answer to the questions. Explain why you have made the assumptions that you have made There are no "correct" answers and big part of your job is to take and use the facts of the case and make reasonable assumptions to arrive at an answer you can defend. You will be graded on the quality, depth, and persuasiveness of your answers. Please show the details of all calculations. During class you may be asked to provide a spreadsheet for your group that reflects your analysis of questions #1 and #2.
You are an analyst for Airbus and need to provide an opinion about the A3XX controversy (should we build it?).
Paper should follow the format of: intro to the problem, discussion of pros & cons of alternatives, discussion of problems facing the valuation of the project, assumptions for valuation and justifications for assumptions used in analysis, mathematical valuation, acceptance/rejection of alternatives and why the chosen alternative.
Required analysis
Question #1:
In your paper estimate the value of Airbus A3XX as a project using the WACC method. Using this estimate, what do you value the project at?
Question #2:
In your paper estimate the value of Airbus A3XX as a project using the Flow to equity method. Using this estimate, what do you value the project at?
Anticipated approach for both #1 and #2:
Produce a proforma of all anticipated CFs 2001-2008 based upon information given in the case. Assume a reasonable perpetuity from 2009 onward. A proforma statement should include, but is not limited to: Revenue, operating costs, capital investments, depreciation, interest payments(for FTE), taxes(assuming that losses will be absorbed by the rest of the corporation as a shield for other income) , etc. etc.. It is strongly suggested that you utilize a spreadsheet such as excel to aid in producing the proforma statement of CFs. Each group should bring to class a flash-drive with their results for the valuation analysis. This will allow the class to critique each groups performance.
Note about leverage: capital for the project is provided by RSP (risk sharing partners), Launch Aid and EAD participants.
1. For RSP you must decide if this funding is debt, equity or something else. Be sure to justify your answer.
2. For launch aid you must decide if this funding is debt, equity or something else. Be sure to justify your answer.
3. For EAD participants the case seems to indicate that their contribution to the project is all equity. Please DO NOT assume that EAD money is 100% equity. Instead, assume that EAD money is from debt and equity in proportion to that which the firms have used historically.