Fly - by - Night Airlines

The 8 percent pre-tax estimate is the nominal cost of debt. Because the firm's debt has semiannual coupons, its effective annual cost rate is 8.16 percent

The equipment is expected to cost $240,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 96,000 units of the equipment’s product each year. The expected annual income related to this equipment follows.

-Martin Industries just paid an annual dividend of $1.30 a share. The market price of the stock is $36.80 and the growth rate is 6.0 percent. What is the firm's cost of equity?

1. On January 1, a machine with a useful life of five years and a residual value of $40,000 was purchased for $120,000. What is the depreciation expense for year 2 under the double-declining-balance method of depreciation?

Operating cost include fuel cost, maintenance cost, upgrading cost and personnel expenditures. The upgrading costs for PJ-2 and PJ-3 apply to the end of year 4 and year 7 respectively. Estimation of total operating cost is in Appendix B.

• Pe = D1/(re – g) = 700 / (0.11 – 0.05) = $11,667 • price per share = $11,667 / 1,000 = $11.67 3. Same facts as (2) above, except the 5% income growth rate (and beginning of year common equity to support it) are only expected for years 2 and 3. Then growth is expected to be zero and all income is expected to be distributed to shareholders for all future years. a. Compute D1, D2, D3, and Dt for all future years. • Keeping in mind that income is $1,100 in year 1, increases by 5% in years 2 and 3, and then remains constant for all future years; and keeping in mind that beginning of year 1 common equity is $8,000, increases by 5% at the beginning of year 2 and at the beginning of year 3, but does not increase at the beginning of year 4 and remains constant from that point forward, you should be able to compute: D1 = $700, D2 = $735, and Dt = 1,212.75 for D3 and all future years. b. Use the dividend discount (i.e., free cash flow to equity investors) valuation model to estimate the company’s current stock price. Pe = 700/(1+ 0.11) + 735/(1+ 0.11)2 + [1,212.75/0.11]/(1+ 0.11)2 = $10,175.31 and the price per share of common stock = $10,175.31 / 1,000 = $10.18. 4. Same facts as (3) above, except the growth rates are 5% for years 2 and 3 and then 3% perpetually for all future years. a. Compute D1, D2, D3 and the growth in D for all future years. • Keeping in mind that income is $1,100 in year 1, increases by 5% in years 2

Thus the WAVG Cost of Debt (including L/T debt and preferred stock) = rd = 8.633%

This paper will review the case study of Delta Airlines which was suffering like all its competitors with rising fuel costs which averaged anywhere between 30 to 50 percent of its total operating costs. This paper will answer six questions which will help identify what the company did to handle the high cost of fuel. The questions that I will answer will include the following.

To estimate the cost of equity, we need to compute the beta of equity for each division using comparable companies. As the betas of debt were not provided, we made 2 assumptions: a. same business lines have the same beta of debt; b. Expected return of debt = Rf + βb*[E(Rm) – Rf*(1-T)] (Rf: risk free rate, E(Rm): expected

And we calculated the weight of debt which was Weight of debt for P&S= [(13.1%+5.3%)/2]= 9.2%

Airline industry is a customer service based industry. They sell their services by enabling the movements of their customers by transporting them from one place to another, to include their belongings too. Airlines industries require a large amount of capital in order to provide these services. They need to maintain their expensive equipment, the facilities they function from and maintain a large amount of staff because they serve their customer making it a labor intensive industry requiring people to do the work for its customer such as transporting their luggage, and serving them in the aircraft during a flight.

Increasing deregulation and liberation of the airline industry have in the past decade triggered fierce competition among airlines in key markets such as Europe and Asia. Traditional airlines mainly in Europe no longer dominant the global market like they once did. Relatively newer airlines such as Emirates Airlines from UAE now constitute key competitors. In light of the intense competitiveness that characterises the current airline industry, managers have been compelled to redesign their business models in order to increase market share and maximise profits. Some airlines have for instance adopted a low cost strategy that seeks to exploit economies of scales while at the same time offering no frills products and services.

AN ANALYSIS OF FLY-BY-NIGHT AIRLINES EXECUTIVE SUMMARY Fly-by-Night Airlines is a major commercial air carrier offering passenger service between most large cities, currently possesses a fleet of aircraft; model PJ-1, purchased from Puddle Jumper Aircraft Company. One of the more profitable routes between Los Angeles and New York subsidizes other unprofitable

The purpose of this paper is to analyze the airline industry by focusing on its structure, conduct and performance.

The airline industry is by itself plays a big part in the economy. It generates 31.9 million jobs globally. (The impact of the financial crisis on labour in the civil