What is the Profitability Index of the Airbus A380 project? The Airbus A380 is the largest civilian aircraft ever built.It can carry 555 passengers on two decks.Initial project investments were $13B.Assume that the initial investment was paid on Dec 31,2008.Assume that Airbus will produce 60 aircraft per year for five years.Each aircraft will be sold for $230M and total operating costs are 75% of revenues.Assume that revenues and costs occur at year-end with the first revenues (and costs)occurring on Dec 31,2009.Assume that Airbus' cost of capital is 11%.Calculate the Profitability Index as of Dec 31,2008.Assume that there are no terminal year cash flows.
A) 0.935
B) 0.981
C) 0.995
D) 1.333
E) 1.981

Question

Quizplus · Accepted Answer

PI = 11ea7fdb_fbea_67dc_a768_4b0cb8183429_TB2902_11 PV(Inflows) = PMT 11ea7fdb_fbea_67dd_a768_3564bf2d1705_TB2902_11 PV(Inflows) = (230,000,000 × 60 × 0.25) 11ea7fdb_fbea_67de_a768_bf072dbf45f9_TB2902_11 = $12,750,844,710
PI = 11ea7fdb_fbea_67df_a768_69ce7c3a6161_TB2902_11 = 0.981

What Is the Profitability Index of the Airbus A380 Project