Air Canada 2011 Annual Report Download - page 97

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2011 Consolidated Financial Statements and Notes
97
The recoverable amount of the cash-generating units has been measured based on its value in use, using a discounted cash
flow model. Cash flow projections are based on the annual business plan approved by the Board of Directors of Air Canada. In
addition, management-developed projections are made covering a three-year period. These cash flows are management’s best
estimate of future events taking into account past experience and future economic assumptions, such as the forward curves
for crude-oil and the exchange rates. Cash flows beyond the three-year period are projected to increase consistent with the
long-term growth assumptions of the airline considering various factors such as industry growth assumptions. The pre-tax
discount rate applied to the cash flow projections is derived from the Corporation’s weighted average cost of capital adjusted
for taxes. Key assumptions used for value in use calculations are as follows:
2011 2010
Pre-tax discount rate 15.6% 16.6%
Long-term growth rate 2.5% 2.5%
Jet fuel price range per barrel $125 – $135 $85 – $95
The recoverable amount of both cash-generating units based on value in use exceeded their respective carrying values by
approximately $1,400. If the discount rate were increased by 380 basis points, the excess of recoverable amount over carrying
value would be reduced to nil.
During fiscal 2010, the most recent calculations from the preceding period were carried forward as the calculation of the
recoverable amount exceeded the carrying amount by a substantial margin, the assets and liabilities making up the CGU had
not changed significantly and no events had occurred or circumstances had changed which would indicate that the likelihood
of the recoverable asset not exceeding the carrying value was remote.