I need help with 4 questions. If you could also include your work and enter the answers in word.admin / August 17, 2018
MBAA 523 Problem Set1 1. An airline is considering the purchase of an Airbus A-320neo which offers improved fuel efficiency over the previous…
I need help with 4 questions. If you could also include your work and enter the answers in word.
MBAA 523 Problem Set1
An airline is considering the purchase of an Airbus A-320neo which offers improved fuel
efficiency over the previous generation of narrow-body aircraft. The finance department
estimates the aircraft will generate a positive net cash flow of $6 million in the first year
increasing by 5% annually owing to the aircraft’s fuel efficiency. The airline plans to operate
the aircraft for 15 years, then selling it in year 16 for an estimated net cash price of $30
million. The airline targets a return on invested capital of 12% annually (use this rate rather
than the interest rate to discount future cash flows). What is the maximum price the airline
should be willing to pay for a new A-320neo? Note:
This computation is easiest to perform
using MS Excel. The Excel computations may be copied and pasted into MS Word.
Complete the following table and answer the accompanying questions. Note:
computation is best completed in MS Excel. Copy and paste the resulting table into this
A. At what level of the control variable are net benefits maximized?
B. What is the relation between marginal benefit and marginal cost at this level of the
Approximately 90,000 students per year apply to the top MBA programs.
C. Using the concept of net present value and opportunity cost, explain when it is
rational for an individual to pursue and M.B.A. degree.
D. What would you expect to happen to the number of applicants if the starting salaries
of managers with an M.B.A. degree remained constant but the salaries of managers
with bachelor’s degrees increased by 15%? Why?
A small airline recently sold to a private equity group for $145 million. The airline has earned
profits of $9 million last year. The new managers believe they can grow profits at 5% per
year. The private equity group borrows money from wealthy individuals to invest in
acquisitions. Because of the significant risk involved, lenders are promised a 12% return on
their loans to the equity group. Is the purchase price of the new airline reasonable? Explain.