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FINA 380 Financial Policy Midterm test 2020 - Howard University

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FINA 380 Financial_Policy_Midterm test 2020 - Howard University FINA380 Financial_Policy_Midterm test 2020 Business Financial Policy Midterm WNG Capital LLC Gabrielle Sutton @02806630 Business F... inancial Policy Team #2 Dr. William H. Brent Howard University April 10, 2020 Problem Statement WNG Capital is an aircraft operating lessor that supports the investment and manufacturing of Boeing and Airbus airlines. In late 2013, Mr. Wenbo Su, a financial analyst at WNG Capital, was tasked with determining the value of the firm’s purchase-and-leaseback deal with a smaller British airline company. After months of negotiations, WNG renegotiated their initial offer to reflect the losses in residual value and purchasing price. II. Alternative Solutions • Accept the adjusted operating lessor proposal • Decline the adjusted operating lessor proposal III. Analysis of the Alternatives Accept the adjusted operating lessor proposal In order to fully understand the true value of this deal, it was important to calculate the NPV and IRR the deal would bring to WNG Capital. Firstly, I had to calculate the value a 1-year lease would bring to WNG Capital. I had to consider all of the adjustments mentioned in the side letter. Considering the case did not provide any other costs and revenues, I was able to use the information referenced in Exhibit 41.5. Because WNG desired a higher and more favorable required annual return of 20%, I used that rate to help determine the NPV. I received a dramatically negative NPV at first. It wasn’t until I decided to factor in the residual value that the NPV and IRR had more agreeable results, despite Mr. Su’s original assumption to appraise the This study resource was shared via CourseHero.comresidual/salvage value of zero. In total, the returns for a 1-year lease showed an approximate NPV of $1.7 million and IRR of 10.85%. To continue, Mr. Su stated in the case that WNG would likely follow a re-leasing strategy after the 1 year lease. A 3 year re-lease would be ideal to reflect the equipment’s remaining operating life and the continued valued it might bring to the company. However, there would have to be some adjustments to the monthly rent price (80% of estimated cost for time during last years of operating life), the elimination of the additional 10% in rent, and the reduction of residual value. The added modifications to the re-leasing agreement allowed the NPV to jump to $4.135 million but the IRR dropped more than half in value to 5.02% - - - - - - - - - - - - - - - - - - - - - - - [Show More]

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