Essay by SmokanabeachUniversity, Master'sB+, May 2005

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The Public Entreprise Airport (PEAS) is currently in charge of different airport activities In order to extend its activities some investments will be necessary.

That's why the following case study presents different situations of investment through different programs:

- Program 1: Program requiring a minimum investment (=More security), but with low return.

- Program 2: Program requiring an higher investment (=More risks), but with a considerable return.

Each program includes two different scenarios of traffic:

-Low traffic: Unoptimistic previsions of traffic

-High traffic: Optimistic previsions of traffic

So, through a detailed study, we are going to show you what will be the best program, depending on the scenario, for the PEAS


1- Explanations of the formulas

2- Tablers

3- Graphical analyses

4- Recommendations

1. Explanations of the formulas

The following datas have to be determinated for the SARAVINA Airport Case

Present Value of investment:

The Present Value (or PV) of investment represents the current value of a future cash flow.

PV of investment = investment / (1+Time Discounted Rate)^t,

Where t is the number of the year

Operating Cash-flows:

The Operating Cash-flows are the difference among the revenues of a firm minus its total of operating costs

Operating Cash-flow = Revenue - total of operating costs

Total net cash flows:

That's the difference among the total of operating cash-flows minus the total of engaged investments

Total net cash flows = operating cash flow - total investment

Present Value of cash flow:

Present Value (or PV) of cash flow = Total net cash flows /

(1+Time Discounted Rate)^t ,

where t is the number of the year.

In this study case, we decided to consider that 2003 is the year 0 and discount rate equal to 8%.

Payback periode

The Payback period of a project is the number of years...