Based on the book when there are competitive markets such as airlines, a company certainly needs to look at costs and revenue very closely. (Brickley, Smith, & Zimmerman, 2009, p. 180) In this case I believe that the flights from San Francisco t Washington DC should be discontinued. Even though United Airlines is a large company and profitable if they continue these flights in the long run they will lose money. The other option that they would have would be to increase the fares to cover those costs, but since the airline industry is a competitive market people are more likely to go with a lower cost airline. The first thing the airline must do is look at the firm supply.
Executive bonuses for that year would trigger at or below 10% decline, as long as corporate profitability starts stabilizing. Some issues that may arise are; being unable to meet goals due to poor economy, having smaller bonuses due to the decline of corporate profit. Executive salary lacks incentive for performance therefore bonuses or long term incentives have to be part of compensation. 6. Explain a) A.
It turns out that, while debt reduces a company’s tax liability because interest payments are deductible expenses, increasing amounts of debt raise both the cost of equity capital and the interest rate on debt because of the increasing probability of bankruptcy. In other words, higher amounts of debt raise the financial risk of a company, and this risk is reflected on the cost of all the types of capital the company uses. As such, the relationship between financial leverage and WACC is not a straight line, but more of a U-shaped curve, with a minimum WACC between the extremes of debt utilization. Apart from the risk associated with a firm’s fundamental
Latam with less than 1% net profit margins has less room for execution failure than AAL with 6,66% profit margins considering small miscalculations or mistakes can be amplified in a way that leads to tremendous losses for shareholders. Once the margins reflect the firm’s production function, if margins are low, some actions such as reduce expenses, review the prices and identify the most profitable items to concentrate on achieving higher sales targets for them, could be done to improve the net profit. Asset turnover: This ratio is calculated indicates how efficiently management is able to drive sales from company assets in other words how effectively a company converts its assets into sales. The asset turnover ratio tends to be inversely related to the net profit margin as shown
If there is a large increase in some of the figures of the expenditure, it could mean that there would be either a large decrease in the profits made by the company or that the company’s loss figure has increased suddenly. If there was a decrease on some of the figures in the expenditure, then this could mean that there has been a sudden increase in the profit they are making or the loss figure has decreased suddenly. Increasing VAT If there are increasing prices of VAT, then the company will need to make sure that this doesn’t affect the company to bad. The
c. Installation of new ventilating equipment produced depreciation (fixed cost) which will decrease contribution margin, thus the breakeven point will increase. 5. A. Cool-Aire will incur a loss simply if its sales are below 33000, i.e. P(X<33000) or P(Z<((33000-40,000)/4000) = P(Z<-1.75) = 1 - P(Z<1.75) or about .04 using the z-score table. B.
The five forces are competitive rivalry, threat of substitute products, and threat of new entrants, bargaining power of suppliers and bargaining power of buyers. 2.1 Threat of new entrants The threat of new entrants presents the possibility of new firm entering the industry, which increases the competition while reducing the airline revenue. There are a few factors influencing the threat of new entrants such as government regulations, product differentiation, capital requirements and lastly switching costs. There was a low barrier of entry in the airline industry when Airline Deregulation Act eliminated government control over fares and routes. This allows those new entrants who enter the airline industry to slash price to capture market share which increase in competition.
Willow Company is must reduce its inventory levels and sell inventory at a faster rate to improve the inventory turnover closer to 30 days. Due to the negative cash flow, Willow must explore the opportunity to manage its inventory levels relative to sales. The greater the inventory levels, the higher sales must be, otherwise additional storage and other holding costs will be incurred to cause further deterioration in its cash position. Cash will be invested into unsold inventory that is generating no return while remaining unsold. In addition, there will be the opportunity cost of not having cash available for more useful requirements i.e.
The fallouts were both good and bad. At one hand, this reduced the excess capacity within the industry and reduced price completion (Opportunity). Whereas debts of the insolvent were carried to the consolidated company along with the others costs of mergers (Threat) Political Legal Trends:  Regulatory Issues – Post 9/11, US Airlines Industry had to bear additional costs for increasing security. The overall safety
This means that as there is a substantial amount of excess supply prices should be cut heavily in order to increase the demand for this stock. If Monsoon ignore how much excess supply there is when deciding at what extent to cut prices they wouldn’t know how much supply there is to actually sell and therefore may try and sell it at too high a price, therefore causing demand to rise slower than it potentially could, should they discount the prices further Secondly, it is important to consider how quickly stock will go out of fashion. If some of the surplus clothing stays in fashion after the seasonal period, consumers are more likely to buy it at a higher price. This could affect the extent as to how much Monsoon cut prices because if the clothing goes out of fashion they will have to cut prices further, in order to sell the excess supply; getting rid of stock. It is important to consider how expensive the clothing was to buy in, in order to try and maximise