The New England Patriots recently became the first National Football League (NFL) franchise to buy its own team aircraft. The Patriots purchased two Boeing 767 planes for a total of about $10 million. Both planes have been painted with the team’s logo and colors. The Patriots will use the planes for the ten round trips for its away games during the 2017 – 2018 season. If the team would make the playoffs or Super Bowl, it would also use the planes for those games. If a franchise does not own its own planes, the costs of chartering planes is estimated to be about $4 million for the season. The Patriots management has indicated that it may rent out the planes when not in use by the team.
1. List the costs that a team could incur when chartering aircraft to fly its team to the away games. Use your imagination.
2. List the costs that a team could incur when owning and flying its own aircraft for transporting the team to away games. Again, use your imagination.
3. Compare your two lists of costs. What costs appear on both lists? What costs would have been relevant to the New England Patriots’ aircraft purchase decision?
4. What qualitative (aka non-monetary) factors might have influenced the Patriots’ aircraft decision?Think about things like convenience, comfort and other non-monetary factors.
If company owns two Boeing 767 planes, it will cost company $10 million. This is initial investment at time 0. Other than the investment cost, company will charge depreciation to planes every year till life of planes. Hence potential costs involved with owning the planes will be initial investment, annual depreciation & annual maintenance costs.
If company leases them instead of owing them, potential costs involved would be rental charges of 4 million for season, along with any maintenance costs.
Option of buying or leasing will depend on cost of capital which is used to discount the cash flows. Option with a lower present value of cash outflows will be chosen. Most probably option of lease will be chosen because cost of 10 million may be avoided.
Get Answers For Free
Most questions answered within 1 hours.