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Hong Kong Dragon Airlines Limited (A): Determining the Cost of Capital  
 
Product Ref: 09/457C Company: Hong Kong Dragon Airlines Limited

Product Type: Case Industry: Airlines

Related Product(s): Teaching Note
Authors: Ko Wang   Su Han Chan   Andrew Lee
In early 2006, a taskforce at the Hong Kong Dragon Airlines ("Dragonair") was formed to evaluate alternative ways to replace a spare engine. The potential options were to either purchase the engine outright or to lease the engine via a direct lease or a sale-and-leaseback arrangement. However, to assess and compare the attractiveness of each option, the taskforce must first determine an appropriate discount rate to use.
Functional Area : Finance & Investments

Learning Objective: This two-part case series require students to decide which of three alternative methods Dragonair should use to acquire a spare engine for its fleet. The alternative methods are: an outright purchase, a direct lease, or a sale-and-leaseback arrangement. The important issues highlighted are the unique aspects of engine leasing, the cash flows relevant to a lease versus buy decision, the proper discount rates to use, and the influence of the residual value.
Length: 6 pages Country: Hong Kong SAR

Pub. Year: 2010 Level of Difficulty: 2
         
This product type is available in the following language(s):      English
         
Related Information: N/A
 
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Case (09/457C) HK$58 / US$7.5
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