Hong Kong Dragon Airlines Limited B Case Solution

Case Solution

At the outset of 2006, a task pressure within the Hong Kong Dragon Airline carriers (Dragonair) was produced to evaluate different ways to switch an additional engine. The chance options would either purchase the engine outright to be able to lease the engine utilizing a direct lease or possibly an order-and-leaseback arrangement. However, to judge and compare the benefit of each option, the task pressure must first determine a appropriate discount rate to take advantage of.

Excel Calculations

 Return Conditions- Flight Hours, Flight Cycles, Life of the Engine, Remaining Life

Senstivity to WACC (Up)- Purchase, NPV, Sale and Lease Back, Cash Flows, PV

Senstivity to WACC (Down)- Purchase, NPV, Sale and Lease Back, Cash Flows, PV

Senstivity to Purchase Price (Up)- Purchase, NPV, Sale and Lease Back, Cash Flows, PV

Senstivity to Purchase Price (Down)- Purchase, NPV, Sale and Lease Back, Cash Flows, PV

Questions Covered

Executive Summary

What are the after-tax cash flows relevant to the purchase option and what discount rate should be used for those cash flows?

What are the after-tax cash flows relevant to the sale-and-leaseback option and what discount rate should be used for those cash flows?

What are the pros and cons of each option given in the case?

Perform sensitivity analysis to identify the key bets/assumptions in your decision.