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MBAA 523 set 1




Question;1. 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.2. Complete the following table and answer the accompanying;questions. Note: This computation is best completed in MS Excel. Copy and paste;the resulting table into this Word document.;Control;Variable Q;Total;Benefits B(Q);Total;Cost C(Q);Net;Benefits N(Q);Marginal;Benefits MB(Q);Marginal;Cost MC(Q);Marginal;Net Benefits MNB(Q);100;1200;950;210;40;101;1400;50;102;1590;60;103;1770;70;104;1940;80;105;2100;90;106;2250;100;107;2390;110;108;2520;120;109;2640;130;110;2750;140;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 control variable?3. 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?;4. 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.="msonormal">


Paper#56233 | Written in 18-Jul-2015

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