Financial Analysis of MegaSaver Airways

This assignment presents, with the justifications, the financial budget as planned by the MegaSaver Airways Company. In so doing, this assignment will take into considerations some of the critical turning points and dictators of decision making as argued out by the various scholars (Lusardi and Mitchell 2011; Pelletier 2017). Therefore, the costs allocated for a feasibility study, rent, new equipment and depreciation rates, as well as the manager’s salary, are deeply scrutinized.

a) Cost of the feasibility study

MegaSaver Airways Company has allocated £2, 000 000 for all the activities that are associated with the feasibility studies. Presumably, these costs will care for the operation trials, assessments, seminars and meetings that are to be held before the project begins. Based on the rental costs and expected expenditures on the instruments, then £2, 000, 000 seem to be an exaggerated cost for the feasibility study. By proportion, £2, 000, 000 takes about 52% of the whole budget (taking the manager’s salary to be £25, 000 for the 25% of their time). An appropriate value could be slightly lower than 50% (Lusardi and Mitchell 2011).

b) Rent for the project 

The allocation of £300, 000 for the project precisely fits the other allocations. Pelletier (2017, para. 12) indicate that one of the most influential factors in financial decision making is the financial position of the company. Therefore, the long-term expenditures like rent need minimal amounts. £300, 000 constitutes about 7% of the total budget as presented by the MegaSaver Airways Company. Rent is one of the expenditures that are likely to remain unchanged over a long period of time.

c) Cost of new equipment

The equipment is another essential element of production that requires more attention and value. Therefore, it is crucial to consider the purchases of such necessities based on the strategic position and avenues for future growth (Pelletier 2017, para. 4). MegaSaver Airways has allocated £1, 500 000 for an equipment with high depreciation value. Such a huge allocation will not only push them to intense operations but also expose them to lots of potential financial risks.

d) Depreciation on the new equipment

The new equipment is projected to undergo a constant depreciation rate over the next 10 years and that will mean that the MegaSaver Airways will have to set another budget for another equipment. The allocation for such depreciation is inevitable for any machine or equipment and MegaSaver Airways is justified to prepare for the reinstallation/maintenance costs.

e) Manager’s salary

            The MegaSaver Airways has settled on the idea to hire, on a part-time basis, a manager from another Company (GoGo Airlines) with an annual salary of £25, 000 (computed as a 25% of the manager’s time on MegaSaver Airways).The salary allocation is justifiable based on two reasons. First, the manager from GoGo Airlines would bring in skilled managerial skills that as exhibited in GoGo Airlines. Secondly, the salary costs are lowered and thus more appealing than hiring a full-time manager. Moreover, the low wage for the manager will create some chances of financial advancements for MegaSaver Airways Company.

References

Lusardi, A. and Mitchell, O.S., 2011. Financial literacy around the world: an overview. Journal of pension economics & finance, 10(4), pp.497-508.

Pelletier, M. (2017). Five key factors to assess when making an investment decision. Financial post. Accessed from http://business.financialpost.com/investing/investing-pro/five-key-factors-to-assess-when-making-an-investment-decision

[online] on 22nd April 2018.