Demand at each particular exchange rate, Financial Management

Assignment Help:

The usual number of passengers using the service is dependent upon the demand at each particular exchange rate.

At 1·52 Euro/£ expected demand = (0·33·)(500 + 460 + 420) = 460

At 1·54 Euro/£ expected demand = (0·33·) (550 + 520 + 450) = 506·67

At 1·65 Euro/£ expected demand = (0·33·) (600 + 580 +500) = 560

The expected demand is so

= (0·2) (460) + (0.5) (506·67) + (0·3) (560)

= 92 + 253·33 + 168

= 513·3 per train

= 1026·7 per day

(b)

WORKINGS

45% of passengers utilize the catering service spending $4.50 per head on average. Two trains are run daily for 360 days per year this give

28_Demand at each particular exchange rate.png

Gross catering receipts are below an average of £2200 per day so the 5% commission doesn't apply.

Contribution from the current service

Contribution £246985 per year

 

 

 

Cash Flows: In House Option

102_Demand at each particular exchange rate1.png

NET PRESENT VALUE = £220828

Cash Flows: Contract Out Option

662_Demand at each particular exchange rate2.png

NET PRESENT VALUE = £266350

This option therefore offers an NPV which is £45522 greater than the in-house option which means that profits could be increased by contracting out the catering service.


Related Discussions:- Demand at each particular exchange rate

Calculated betas provide different information, Calculated betas provide di...

Calculated betas provide different information if they are obtained by using daily, weekly or monthly data. Which data is the most appropriate? Fernández and Carabias (2007) an

Beta, Definition of 'Beta' A measure of the volatility or systematic ri...

Definition of 'Beta' A measure of the volatility or systematic risk of a security or a portfolio in difference to the market as a whole. Beta is needed in the capital asset pri

What is the annual tax shield, what is the annual tax shield to a firm that...

what is the annual tax shield to a firm that has total assets of $80 million and a net worth of $55 million,if the average interest rate on debt is 8.5% and the marginal tax rate i

Determining the call option value, The effective maturity of a ...

The effective maturity of a callable bond can be anywhere between the first call date and its maturity date due to the presence of the call feat

Sustainable growth rate, You are given the following information for Clapto...

You are given the following information for Clapton Guitars, Inc. Profit margin 6.3% Total Asset turnover 1.6 Total debt ratio 0.44 Payout ratio 35% Calculat

Determine the motivation foreign firm - high - tech u.s firm, Currently, ma...

Currently, many foreign firms from both developed and developing countries obtained high-tech U.S. firms. What might have motivated these firms to obtain U.S. firms? Answer: Se

Case let, This case has been framed in order to test the skills in evaluati...

This case has been framed in order to test the skills in evaluating a credit request and reaching a correct decision. Perluence International is large manufacturer of petroleum and

Cost of sales and functioning costs, Entity A is significantly smaller than...

Entity A is significantly smaller than B in terms of revenue and would not impact LOP's revenue to the same extent. However A earns a noticeably better gross profit margin at 26% a

Determine in brief about venture capitalists, Determine in brief about Vent...

Determine in brief about Venture capitalists Venture capitalists are organisations which take on risky business ventures. They provide finance for and generally require a high

Irr and npv, (a) Lonesome Gulch Mines has a standard deviation of 42% per ...

(a) Lonesome Gulch Mines has a standard deviation of 42% per year and a beta of 0.10.  Amalgamated Copper has a standard deviation of 31% a year and a beta of 0.66.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd