Prof. Ian Giddy, New York University
Founded in 1931 by a New Zealand pilot of the Royal Canadian Air Force named Lowell Yerex, "Transportes Aéreos Centroamericanos" (TACA) started operations in Tegucigalpa, Honduras with one airplane and a contract from the Honduran government to transport goods. By 2006 Grupo Taca had expanded through acquisitions, providing passenger and cargo services to Central and South America in a strong multi-national alliance, from New York to Santiago, Chile.
Projected Cash Flows
1. From Grupo Taca's point of view, this lease contract is effectively a debt obligation. Taca's normal long-term borrowing cost is 9% p.a. What is the present value of the company's lease obligation?
2. Den Lage Landen has a weighted average cost of capital of 11%. The return on every leasing transaction must exceed this WACC by at least 1%. Does the internal rate of return (IRR) on the Taca lease exceed this hurdle?