Minimum load factor at which the company breaks even

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Reference no: EM13964248

OPIM Bus Inc. offers low-cost bus transportation between Philadelphia and Bryn Mawr. The invested capital is $500,000, corresponding to the investment in the two vehicles it owns. Each of the two buses can carry 50 passengers. Each bus does 12 daily trips from Philadelphia to Bryn Mawr and 12 from Bryn Mawr to Philadelphia. The price is $10 for each one-way ticket. The current load factor is 70 percent (i.e., 35 seats are sold on average). The annual cost of operating the service and running the business is $6 million. The company operates 365 days a year.

a. Draw an ROIC (return on invested capital) tree for the company.

b. What is the current ROIC?

c. What is the minimum load factor at which the company breaks even?

d. What load factor would the company have to achieve so that it obtained a 10 percentage-point increase in the ROIC (e.g. an ROIC increasing from 5 to 15 percent)?

Reference no: EM13964248

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