ABSTRACT
Airlines require substantial long-term capital expenditures for profitable, sustainable, and efficient business operations. This chapter looks at different capital budgeting techniques and criteria such as payback period, net present value, internal rate of return, and break-even analysis. Cash flow analysis plays an integral role in capital budgeting, as the timing of payments and financing ultimately impact a company’s liquidity and cash balance. Capital projects can also be classified as either independent or mutually exclusive, depending on their impact on other projects. The internal rate of return is the rate of return the company receives from a project over its useful life. The Modified internal rate of return is a revised version of the internal rate of return, and it assumes the cash flows from a project are reinvested at the firm’s cost of capital. Profitability Index measures how much the investment returns compared to the original investment.
