Cincinnati express is a small regional airlinenbsp to open

Reference no: EM13380970

Cincinnati Express is a small regional airline. To open a new route, the airline must buy two commuter airplanes at an estimated cost of $3m each, after tax. Other start-up costs are expected to be $500,000 after-tax. Annual operating costs are expected to be $600,000 per year after-tax. Costs are largely fixed, and do not depend on revenue. As with many new routes into small towns, demand is uncertain until the service has actually been offered. Demand after the first year is expected to be very similar to that in the first year. A discrete probability distribution for revenue is shown in the table below;

Probability	.1	.2	.4	.2	.1
Revenue (after tax)	700,000	900,000	1,200,000	1,500,000	2,000,000

If the route turns out to be unprofitable, the airplanes can be sold for an estimated market value of $2.5m at the end of the first year. The airplanes will last approximately 10 years, after which they will have an estimated salvage value of $250,000. A 10-year horizon is used for decision making.

Reference no: EM13380970

Questions Cloud

Question 1 1the one-worker multiple machines approach : question 1 1.the one-worker multiple machines approach functions as a one-person production line. a production

Question 1 you are the operations manager of a firm that : question 1 you are the operations manager of a firm that uses the continuous-review inventory control system. suppose

Question 1 jerry allison is in charge of production for a : question 1 jerry allison is in charge of production for a small producer of plumbing supplies. the cricket model has an

1 suppose that you have the following data on states of : 1. suppose that you have the following data on states of nature and outcomes for three

Cincinnati express is a small regional airlinenbsp to open : cincinnati express is a small regional airline.nbsp to open a new route the airline must buy two commuter airplanes at

1 a stock paid a dividend of 2 last period and its growth : 1. a stock paid a dividend of 2 last period and its growth rates are forecast to be g1 5 for the first period and g2

Carry out research through a website search into two major : carry out research through a website search into two major property companies with different approaches to managing

Roger has just been hired as chief portfolio officer of : roger has just been hired as chief portfolio officer of bear united capital.as part of this new position he has been

Assume today is june 1 2009 natasha kingery is 30 years old : assume today is june 1 2009. natasha kingery is 30 years old and has a bachelor of science degree in computer science.

User Account

All Pages