The Current Financial State and Appraisal of Barra Airways

1. Introduction
This report will firstly evaluate the usefulness and limitations of the two investment appraisal methods, including the Payback and Net Present Value (NPV). Secondly the report will review historical financial information. Thirdly discuss the financial issues of debt and equity. Finally the report will provide recommendations of how the company’s investment should be finance.
Barra Airways are having a board meeting regarding the financials of the company and advice on the new expansion plans. The new expansion plans are to expand into the Eastern European market, with 20 routes to still be established. Barra already offers cheap flight within Western Europe. The airliner does not offer other service such as meals during the journey; this is one way Barra make revenue. Barra has recently outgrown their aircraft and have decided to replace the old aircrafts with 20 larger fleets; Boeing 737-800. The Boeing 737-800 has significant cost advantages, allowing Barra to offer customers more affordable fares. This advantage is driven through Barra carrying a higher number of seats per aircraft (189 passengers).
The airliner will still offer cheap four one-way flights per day for the first six years, after the sixth year Barra will offer six one-way flights. The figures used in this report are assumptions given by Jura Associates (an equity research firm), Tiree and Coll Ltd (consultancy services to the airline industry) and EU population statistics.
2. Methodology
2.1 Design
The research for this report was obtained by three different institutions (listed above in the introduction). The researchers were making estimated assumption based on primary research they conducted. The calculations for this report were based on th...

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...ufficient yield, and then they can finance the investment though debt. However they need to keep up with their costs to service banks loans or debt finances.
5.2 Equity
Equity is a share presenting an ownership stake in a company. The shareholder is entitles to a payment in form of dividends. However there is no guarantee that any cash flow will be paid. Firms also need to consider risk, with equity; if the firm investment is unsuccessful then this will be reflected in lower payment to shareholders or even no dividends. (Gowthorpe 2005f)
If Barra wishes to finance the investment though equity they need consider that they will be losing ownership and voting rights for the business. One good thing about equity is that Barra will not have to worry about keeping their cost up to pay back loans; this will allow the m to use more capital in the business. (Gowthorpe 2005g)