Development of Qantas Airways: Viability, Investment Appraisal, and Potential Impacts
Added on 2022-12-15
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Running Head: FINANCE 1
FINANCE
FINANCE
Running Head: FINANCE
Contents
PART I......................................................................................................................... 3
Development of the project................................................................................................. 3
Justification of viability.................................................................................................. 3
Presentation of the Investment Appraisal.............................................................................4
Discussion of the potential impacts.................................................................................... 5
Three potential sources of the finance to fund the project.........................................................6
PART II........................................................................................................................ 6
Asset based approach..................................................................................................... 6
Earning value approach.................................................................................................. 7
Market value approach................................................................................................... 7
Discussion about the signalling effect of dividend.....................................................................7
References................................................................................................................... 10
Contents
PART I......................................................................................................................... 3
Development of the project................................................................................................. 3
Justification of viability.................................................................................................. 3
Presentation of the Investment Appraisal.............................................................................4
Discussion of the potential impacts.................................................................................... 5
Three potential sources of the finance to fund the project.........................................................6
PART II........................................................................................................................ 6
Asset based approach..................................................................................................... 6
Earning value approach.................................................................................................. 7
Market value approach................................................................................................... 7
Discussion about the signalling effect of dividend.....................................................................7
References................................................................................................................... 10
Running Head: FINANCE
PART I
Development of the project
Qantas Airways is one of the largest flagships in the world to provide the world class airline
services to the customers across the world. It is the flag carrier of the Australia and it is the
largest airline by the fleet size, international flights and international destinations. The company
is running under the name of the Alan Joyce and the company is listed on the Australian stock
Exchange. It is one of the globally recognized stock exchanges. In this report, the development
of the product has been chosen for the Qantas Company. It has been found recently that the
Qantas Company is engaged in the change of the fleet size and shape for the longer durability
and the customer sustainability. The new market plans of the Qantas suggests the next generation
air fleets such as Embrarer E2 and Airbus A220 which are under the evaluation of the
competitive technology. Beyond the competition there are many other factors due to which it has
been chosen to be one of the most pivotal airlines in the world. In this report a detailed
discussion of the product development is carried out (Airline Watch, 2018).
Justification of viability
Other than considering the financial grounds, the company’s agenda to buy the fleet from Boeing
and the Airbus is to give a competitive advantage to the other Airlines such as Lufthansa,
Emirates. By the end of this year, the Qantas is moving towards the market development by
introducing the new product in the market for Airbus A30Neo or Boeing 737 MAX.
Airbus is also taking a shot at an A350-1000 with expanded range, a recipe like that of the A350-
900 ULR requested by Singapore Airlines. As far it is concerned, Boeing offers the littlest
PART I
Development of the project
Qantas Airways is one of the largest flagships in the world to provide the world class airline
services to the customers across the world. It is the flag carrier of the Australia and it is the
largest airline by the fleet size, international flights and international destinations. The company
is running under the name of the Alan Joyce and the company is listed on the Australian stock
Exchange. It is one of the globally recognized stock exchanges. In this report, the development
of the product has been chosen for the Qantas Company. It has been found recently that the
Qantas Company is engaged in the change of the fleet size and shape for the longer durability
and the customer sustainability. The new market plans of the Qantas suggests the next generation
air fleets such as Embrarer E2 and Airbus A220 which are under the evaluation of the
competitive technology. Beyond the competition there are many other factors due to which it has
been chosen to be one of the most pivotal airlines in the world. In this report a detailed
discussion of the product development is carried out (Airline Watch, 2018).
Justification of viability
Other than considering the financial grounds, the company’s agenda to buy the fleet from Boeing
and the Airbus is to give a competitive advantage to the other Airlines such as Lufthansa,
Emirates. By the end of this year, the Qantas is moving towards the market development by
introducing the new product in the market for Airbus A30Neo or Boeing 737 MAX.
Airbus is also taking a shot at an A350-1000 with expanded range, a recipe like that of the A350-
900 ULR requested by Singapore Airlines. As far it is concerned, Boeing offers the littlest
Running Head: FINANCE
variation (777-8) of its new wide body stream 777X as of now a work in progress. The 777-8 can
suit 350 to 375 travellers on a 8,693 mi. (16,100 km) flight (Brainrants, 2019).
The flight scope of the base form of the A350-1000 is a little beneath of 8370 nmi (15,500 km)
yet the flying machine offers more edge with the expansion of additional fuel tanks as on the
A350-900 ULR, which would enable the Airbus' improved wide body to show improvement
over its American rival. These flights will give the customers extra leg room for more comfort.
Also this light weighted aircraft will consume less fuel and hence, the new technology enhances
the major opportunities for the Qantas other than just on the financial grounds (Cummins, 2019).
Presentation of the Investment Appraisal
There are several investment appraisal techniques that can help in deciding whether the project
of the new Boeing shall be accepted by the company or not. This acceptance or the rejection can
be done on the basis of the various parameters, such as Net present value, internal rate of Return
and payback period. This can be done step by step by first finding out the cash flows and cash
inflows, calculating the cost of the capital and lastly using the two investment appraisal
techniques.
Weighted Average Cost of Capital
Cost of Equity
Risk free rate of return 4.23%
Beta 1.65
Market Premium return 6.40% 7.8%
Cost of debt
Interest expense 2300
Long term liabilities 43440 5.29%
MARKET VALUE OF EQUITY 75560
variation (777-8) of its new wide body stream 777X as of now a work in progress. The 777-8 can
suit 350 to 375 travellers on a 8,693 mi. (16,100 km) flight (Brainrants, 2019).
The flight scope of the base form of the A350-1000 is a little beneath of 8370 nmi (15,500 km)
yet the flying machine offers more edge with the expansion of additional fuel tanks as on the
A350-900 ULR, which would enable the Airbus' improved wide body to show improvement
over its American rival. These flights will give the customers extra leg room for more comfort.
Also this light weighted aircraft will consume less fuel and hence, the new technology enhances
the major opportunities for the Qantas other than just on the financial grounds (Cummins, 2019).
Presentation of the Investment Appraisal
There are several investment appraisal techniques that can help in deciding whether the project
of the new Boeing shall be accepted by the company or not. This acceptance or the rejection can
be done on the basis of the various parameters, such as Net present value, internal rate of Return
and payback period. This can be done step by step by first finding out the cash flows and cash
inflows, calculating the cost of the capital and lastly using the two investment appraisal
techniques.
Weighted Average Cost of Capital
Cost of Equity
Risk free rate of return 4.23%
Beta 1.65
Market Premium return 6.40% 7.8%
Cost of debt
Interest expense 2300
Long term liabilities 43440 5.29%
MARKET VALUE OF EQUITY 75560
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