Case Lufthansa

When the discount rate increases from 15% to 40%, the company faces a 37.3% drop in its total value. The loss will be $5,609,132. the largest difference rate comes from the silver segment. Firstly, the silver segment has the most significant amount of customers. The requirement of being a silver customer is small ( fly with the Northern Aero at least one time). Secondly, each year some of the customers will degrade from the platinum or gold segment to the silver segment. Due to the

3- As we can see the company would loss 0.52 cent per 1 kg if it decides to sell at 6.85 price and allocates the fixed expenses at 1.20 per 1 kg.

Scenario 2A: Operate carrier for 15 years and scrap. Assume a 0% tax rate. Based on a PV analysis where the ship is decommissioned at year

| |iv. Service quality cost savings – Controllable and relevant – With the 6 supplier option the company saves $100,000 in|

b. At sales price less estimated costs of disposal, if all the following conditions exist:

i) Given that Dozier industries does nothing to hedge this risk, assuming that spot exchange rate remains the same as on Jan 14,1986 levels,

147 (1) Assume that BlueSky purchases three identical aircraft. How many coach seats should BlueSky order for the three new aircraft? (2) Now suppose that the three aircraft can be different sizes, between 240 and 380 coach seats. (a) How do you think the three aircraft should be allocated among the six routes? In other words, should the same aircraft always fly the same routes? Why or why not? (Hint: You do not need an optimization model to answer this question). (b) How many coach seats should BlueSky order for each of the three new aircraft? (3) Because it is cheaper to manufacture three identical planes, Airbus is offering BlueSky a one-time, $5 million discount if it will order three identical aircraft. Should BlueSky take the discount? In deciding this, you may assume that BlueSky operates 3 banks per weekday through Houston, and that the revenues and demands for every bank on every weekday are equal to the demands in Tables 1 and 2 of the (A) Case.

By paying an option premium, Jaguar could reserve the right but not bear the obligation to exercise the option –based on favorable or unfavorable currency levels.

Airlines usually buy new jets under long-term fixed price contracts. This effectively shifts the financial risk to the aircraft manufacturer as they have no certainty of the future, thus giving

1. There are a few trends in the US airline industry. One is consolidation, wherein existing players merge in an attempt to lower their costs and generate operating synergies. The most recent major merger was the United Continental merger, which is still an ongoing affair, but has created the largest airline in the United States by market share (Martin, 2012). Another trend is towards low-cost carriers. In the US, Southwest has been a long-running success and JetBlue a strong new competitor, but in other countries this business model has proven exceptionally successful. The third major trend is the upward trend in jet fuel prices, and the increasing importance that this puts on hedging fuel prices and capacity management (Hinton, 2011).

To calculate the total costs involved for each of the three options, I have considered only those factors that are not common in all. I have calculated only the excess of cost that might be required to deploy an option.

* Hedging. Hedging with the fuel market could save enough money in one year to offset the next year’s fuel supply and costs.

Forward contract. Lock in an exchange rate with the bank until a certain future date, with currency projections against the spot rate though.  In this case had an option to have Forward contracts, which allow Nodal fixed exchange rates in the future at no charge, the bank may impose a fee

* Refer sheet “100% Options” of the attached excel. It shows the Cost that would be incurred with 100% hedge using Options for different scenarios.

If the new spot rate is above 1.0847(1.06470.02), the option is out-of-the money and it dominates the money market hedge (because when the euro is sufficiently strong, then the free disposal (the right to throw away the put) of the out-of-the money option becomes very valuable). The new spot rate is so attractive that you can pay for the (unused) put option and still do better than the money market forward rate. e) You learn that UBS Warburg expects the European currency to hit 1.15 by the end of the year. You strongly believe in UBS Warburgs forecast, what hedging plan would work best for you 3 Given that you strongly believe in the euro appreciation beyond 1.0847 USD/EUR and you have a receivable in six months, the option hedge would be the most profitable of the plans according to your expectations.  QUESTION 3 - 15 points In the US Semiconductor (USS) case, the group controllers of USS suggested that for the translation of a new UK