Question

In: Finance

Charlie Brown is thinking about starting Wing-It Airlines to fly a commuter route in and out...

Charlie Brown is thinking about starting Wing-It Airlines to fly a commuter route in and out of a major city. Four planes are on the market that will do the job, but each has different flight, load, and operating characteristics. Charlie is unsure of the demand for his service, and feels that it may depend to some extent on the type of plane chosen. Whether or not the business is feasible may depend on which airplane is used in conjunction with the demand estimate assumed. Are capital budgeting techniques appropriate for analysis of this problem? If so, is the issue a stand-alone or mutually exclusive decision?

Solutions

Expert Solution

I would be trying to advocate that capital budgeting decision should be specifically made for each of the plane and they should not be made in collectively because capital budgeting decisions will be those decisions which will be relating to allocation of the capital resources as well as they will also be demanding the appropriate structuring of the capital and since it is given that the demand is different on different routes than the aeroplanes has to be differently capital budgeted in order to get in line with the changing demand of the market and it will be helpful in order to calculate the various decision making techniques.

I will be trying to create the projects as independent products and I will be trying to make a standalone decision for each of the aeroplanes and I will not be trying to go for mutually exclusive decision because there is a difference in the demand and supply of different routes and hence it cannot be valued collectively and we should be trying to value them separately by the adoption of appropriate and capital budgeting mechanism in order to help these companies to establish the better capital budgeting techniques so I would always be trying to go for a stand alone principle of capital budgeting mechanism which will be advocating that the projects will be specifically valued rather than mutually exclusive decision in which they will be valued in accordance with the other aeroplanes as well so I would be trying to go for standalone technique of capital budgeting which will be helping me in order to get a better idea about the demand and the supply of various routes and sustainability of the profits on different routes.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Charlie Brown is thinking about starting Wing-It Airlines to fly a commuter route in and out...
Charlie Brown is thinking about starting Wing-It Airlines to fly a commuter route in and out of a major city. Four planes are on the market that will do the job, but each has different flight, load, and operating characteristics. Charlie is unsure of the demand for his service, and feels that it may depend to some extent on the type of plane chosen. Whether or not the business is feasible may depend on which airplane is used in conjunction...
As the domestic border opens, Qantas Airlines (QA) decides to fly only in one route: Sydney...
As the domestic border opens, Qantas Airlines (QA) decides to fly only in one route: Sydney Perth. The demand for each flight on the route is Q=500-P. Qantas’s cost of running each flight is $3000 plus $100 per passenger. a) What is the profit maximizing price that QA will charge? How many people will be on each flight? What is QA’s profit for each flight? b) QA finds out two different types of people fly to Perth. The business people’s...
Mark and Betty are thinking about starting a family. In preparation for this new phase of...
Mark and Betty are thinking about starting a family. In preparation for this new phase of their life, they visited a local hospital to learn about the costs of delivery and care. They learned that the average cost for a normal birth is $7,500. This took Mark’s breath away, until he remembered his employer-provided insurance coverage, under which he and Betty are covered. The plan features are as follows. ● $500 per person deductible. ● 20% coinsurance. ● $3,000 out-of-pocket...
You are thinking about starting a cafe. Opening requires an initial investment of $100,000 and a...
You are thinking about starting a cafe. Opening requires an initial investment of $100,000 and a further investment of $50,000 one year from now. With 70% probability your cafe will be a great success and generate $60,000 in year 2 and FCF will grow at 2% per year after that. Otherwise, the cafe will be only ok and generate $10,000 in year 2 and FCF will not grow. What's the NPV of investing in the cafe if your required rate...
You are thinking about starting a new business that makes and sells a product similar to...
You are thinking about starting a new business that makes and sells a product similar to Red Bull. Why is this magical drink that “gives you wings” under government scrutiny in several countries? What are the ethical issues surrounding making and selling products that may or may not be harmful to a person's health?
Mr. Jones of Montana Farms is thinking about investing in a new J-Wing four-row Beet harvester....
Mr. Jones of Montana Farms is thinking about investing in a new J-Wing four-row Beet harvester. He is currently operating two two-row harvesters and the new harvester would replace both of the current potato harvesters. Mr. Jones expects that he will save $29,000 a year by eliminating one tractor and one operator.   He also expects the new harvester to not bruise the beets as much as the old harvesters. The beet processor has agreed to pay a $0.11/sack premium for...
In these trying times, I’m thinking about starting my own school – the Redman Academy. The...
In these trying times, I’m thinking about starting my own school – the Redman Academy. The school day will consist of 3 periods each day and the school will offer 10 different courses. Each student enrolls in 3 courses per semester and each course is taught during every period (i.e., each course is taught 3 times per day). Students pick classes and but are assigned a period. Courses have no prerequisites a) As a new student, how many different lists...
A particular book publisher is thinking about starting up a new national magazine in a small...
A particular book publisher is thinking about starting up a new national magazine in a small town. It's thought that this publisher would have to get over 12% of the book market to be financially secure. While planning to launch this magazine, a survey was taken of a sample of 400 readers. After providing an inside look into this magazine, one question asked the participants if they would subscribe to this magazine if the cost didn't exceed $20 per month....
Your sister is thinking about starting a new business. The company would require $300,000 of assets,...
Your sister is thinking about starting a new business. The company would require $300,000 of assets, and it would be financed entirely with common stock. She will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%. How much net income must be expected to warrant starting the business? a. $33,210 b. $40,500 c. $41,310 d. $44,145
Step 1 Read the scenario. Assume you are thinking about starting a business and would like...
Step 1 Read the scenario. Assume you are thinking about starting a business and would like to forecast your cash needs for the next six months. You expect sales to be approximately $30,000 per month for the first 12 months and your purchases to support sales will be approximately 60% of sales. You anticipate about 20% of your sales will be cash and 80% collected the following month. Your supplier has agreed to extend credit for 70 days at no...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT