Financial Statement Analysis Modeling Major Assignment

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Analyze and develop a comprehensive financial projection model in Excel for leasing an aircraft to an airline through a Special Purpose Company (SPC). The model should determine appropriate rental charges based on given assumptions, and the final submission includes detailed financial statements of the SPC, including Income Statement, Balance Sheet, and Cash Flow Statement. The assignment is divided into two parts: Part 1 involves creating the rent calculation model; Part 2 involves preparing the financial statements and discussing potential model adjustments if delivery and sale dates vary or if interest calculations consider actual days. Ensure to include your name and student ID on all submissions, and adhere to submission deadlines and academic integrity policies. The overall goal is to produce a transparent, accurate, and professionally formatted financial model and statements that reflect realistic lease and financial scenarios for an aircraft leasing company.

Sample Paper For Above instruction

The aviation leasing industry plays a pivotal role in connecting aircraft manufacturers, lessors, and airlines by facilitating the temporary ownership and rental of aircraft assets. Central to this industry is the ability to accurately model financial transactions and projections, ensuring profitability and risk management. This paper explores the development of an Excel-based financial projection model for an aircraft leasing company, focusing on determining appropriate lease rents and producing comprehensive financial statements for the associated Special Purpose Company (SPC).

Introduction

The core purpose of the financial model is to assist an aircraft leasing company in quoting competitive lease rents while ensuring profitability. The leasing process involves complex financial arrangements, including multiple loans, depreciation, and residual valuation. The model must incorporate fixed assumptions such as aircraft cost, lease duration, interest rates, and end-of-lease residual value, all while remaining flexible enough to adapt to different scenarios.

Model Development for Rent Calculation

The rent calculation model is pivotal as it determines the consistent monthly lease payment that covers all expenses, loan repayments, and generates acceptable returns to the leasing entity. The model begins by inputting key assumptions: aircraft purchase price ($40 million), lease term (9 years), estimated residual value ($28 million), and fixed expenses ($500,000). The model then incorporates interest rates for secured loans—65% of aircraft value at 7%, and 45% of aircraft value at 9%—and the policy for equity return at 12%.

The calculations are conducted in Excel, utilizing functions like PMT for loan payments, and including amortization schedules that distinguish between principal and interest components. Depreciation is modeled linearly over 25 years to 10% of the purchase price, impacting net income and tax calculations (assuming no taxes here).

The output includes the maximum lease rent that ensures loan coverage, profitability, and residual value recovery, adjusted for fixed expenses. The model also allows the input of different lease durations and assumptions to facilitate tender comparison and scenario analysis. The presentation emphasizes clarity, with well-formatted cells, labels, and comprehensive documentation within the spreadsheet.

Financial Statements of the SPC

Part 2 expands on this foundation by generating complete financial statements for the SPC: Income Statement, Balance Sheet, and Statement of Cash Flows, using the designated assumptions. The income statement reflects revenues (lease income), depreciation, interest expense, and net profit. The balance sheet incorporates assets (the aircraft, cash, and receivables), liabilities (loan balances), and equity.

The cash flow statement is prepared using the direct method, detailing cash inflows and outflows from operating activities, investing in the aircraft, and financing through loans. Proper linking of all components is critical, and forecast data from the rent model feeds directly into the statements, ensuring consistency.

Discussion of Model Adjustments and Sensitivity Analysis

In practical applications, lease and sale dates may not align precisely with calendar month-end, affecting cash flow timing and calculations. If delivery and sale dates can fall on any day within a month, the model must adjust to prorate receipts and payments accordingly. This change requires incorporating actual days in interest and depreciation calculations, utilizing functions like YEARFRAC for precise interest accruals.

Calculating interest based on the actual number of days (rather than fixed 1/12 year assumptions) leads to more accurate interest expense recognition, especially with irregular payment dates. This adjustment involves modifying interest calculations to involve the actual days between dates, which improves model precision but increases complexity.

Adapting these features enhances the robustness of the financial model, aligning it more closely with real-world leasing scenarios. It allows the leasing company to better manage cash flow timing, interest expense, and residual value assessments, ultimately supporting more accurate and competitive tendering processes.

Conclusion

Effective financial modeling in aircraft leasing demands a thorough understanding of leasing mechanics, interest calculations, depreciation, and residual valuation. A well-designed Excel model enables leasing companies to accurately quote rents, assess profitability, and prepare comprehensive financial statements. Incorporating flexibility for different lease start dates and interest procedures enhances the model's applicability, providing a strategic tool in competitive tendering and risk management.

References

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