The basic idea was that unit costs, such as direct labor, declined as a function of cumulative output. As a result, the faster Airbus could sell planes, the more profitable it would become. This was especially true in the early years when cumulative output doubled relatively quickly. Discount rate and operating margins – Using a discount rate of 11.0% and operating margin of 15% the factors in Table 1 imply a NPV of negative $296 million and NPV of free cash flows (FCF) of negative $5,139 million. Assuming 2% growth, the terminal value has a NPV of $4,843 million for 2009 and beyond.
The estimated sales and production of 10,000 pairs of skis as the expected volume, the accounting department has developed the following cost per pair: Direct Labor $35.00 Direct Material $30.00 Total Overhead $15.00 Total Cost $80.00 Under this scenario the company will have no profit, but no loss. In order to continue production during the off season, keeping employees working this scenario of breakeven will provide the company with the ability to continue production. Ski Pro has obtained a purchase price from a subcontractor for the bindings. The accounting department provided a predicted savings of 10% for direct labor and variable overhead cost with a 20% savings on the direct material cost. Under this scenario, as you seen on the spreadsheet provided, the company will make a profit of $.50 per ski.
Average collection period = ( 365 * AR ) / Credit Sale Expected Sale Year 2009 = 2,900,000 Account Receivable (Year 2009) = 32* 2,900,000 / 365 = 254,246 Account Receivable (Year 2008) = 388,000 Additional internal fund = 388,000 – 254,246 = 133,754 Sunspot Skis also holds too much inventory ( $826,200) that leads to low Inventory utilization ration 3.5, whereas the industry average is 7. The firm could generate internal fund by liquidated its inventory You
(Data taken from Exhibit 9, detailing passengers for regular and discount flights.) o This forced southwest to alter pricing in June 1972, raising fares to $26 one way / $50 round trip. From Exhibit 8 we see that Operations and Maintenance also increased $18 so the revenue was needed was approximately $800 per flight. With the new fare, Southwest needed between 31 and 32 passengers per flight for a break even point
The next step is to use the function (in this case) =SUM (H5+G5) and copy down to 52 weeks. Model lost revenue due to breakdown When going through the problem finding the amount of copies sold per day, copies lost and revenue I then found the estimated revenue lost per year by dividing the revenue by 365 days, which gave me the average lost revenue. The questions that James, Ernie and Terri is, per Taylor III, B 2011: “Perform this manual simulation for JET Copies and determine the loss of revenue for 1 year.” (Pg. 679) If the loss of revenue were $12,000 or more they would purchase the backup copier. In this case the loss is under their specified amount so therefore they will not need the back up copier.
The firm is currently having problems cost effectively meeting run length requirements as well as meeting quality standards. The general manager has proposed the purchase of one of two large six-color presses designed for long, high-quality runs. The purchase of a new press would enable LI to reduce its cost of labor and therefore the price to the client, putting the firm in a more competitive position. The key financial characteristics of the old press and the two new presses are summarized in what follows. Old press – Originally purchased 3 years ago at an installed cost of $400,000, it is being depreciated under MACRS using a 5-year recovery period.
They would make semiannual payments of $12.303 million and can sell the equipment at the end of its 25-year useful life at $40.185 million. If Acela’s revenue expectations are not met and Amtrak remains unprofitable, the present value of the cost of this option would be 260.26 million. Assuming profitable, the present value of the costs would become approximately $164.77 million due to the benefit of the tax shield. Also, Amtrak is considering an 80% debt to 20% equity leveraged-lease structure to finance the locomotives and train sets. They would make semiannual payments and has the option to buy the equipment from the equity investor, BNY Capital
JetBlue was able to grow its revenues to over 320 million in 2001, compared with a $21.2 million operating loss on $104.6 million in revenue the year before. JetBlue recorded a decent profit margin of 70% in 2001. Financial earnings of the company are presented in Exhibit 1. JetBlue plan to go public could be explained by the fact that since the company is doing well, venture capital wants to cash out now. Using the discounted free cash flow for equity
In 2008 when the economy started to take a downward turn, businesses began to cut back on employee travel, consumers were being more conscious about their spending. Airlines had to come up with a strategy by charging consumers for check bags, headphones pillow and blankets to increase revenues to offset high fuel prices. The Airport Transport Association determined that each cent increase in the price of a gallon of jet fuel cost the industry an additional $190 million to $200 million a year (Thompson, Strickland, & Gamble, 2009). New competition included Virgin America which is a low-fare carrier with a hub in San Francisco and administrative offices in New York City. It serviced flights between San Francisco and New York.
C. accounting profits produced. D. increase in total sales produced. 3. Assume your firm has an unused machine that originally cost $75,000, has a book value of $20,000, and is currently worth $25,000. Ignoring taxes, the correct opportunity cost for this machine in capital budgeting decisions is: A.