Questions and Answers of Sport Funding And Finance

Suppose that an airport's projected net cash flow for next year is $500 million and it is expected to grow at a constant rate of 5 percent. If the airport's weighted average cost of capital is 10
Describe the factors that would be necessary for airport privatization to be successful for commercial airports in North America. How do aircraft manufacturers decide what products and services to
What is the future of air transport in the Asia Pacific?
Briefly address how Embraer is able to compete with Bombardier for world leadership in the regional commercial aircraft market.
Consider the following statement: "Valuation modeling may not be an objective practice, since any presumptions and partiality that an analyst brings to the process may find their way into the value."
Briefly address how Boeing is able to continue its world leadership in large commercial aircraft.
What are the factors that affect the theoretical value of commercial aircraft?
Is it possible to estimate the value of an airport by looking at how the market prices similar airports?
Are there any unique techniques that we should use to measure the value of a commercial airport?
What are the benefits of airport privatization?
Sand Burry Regional airport is conveniently located in the heart of central Massachusetts. The airport offers a $5 million passenger terminal. What is the theoretical value of the airport with the
RestJet is evaluating a potential lease agreement on a push truck that costs $2 million and falls into the MACRS three-year class. The applicable MACRS depreciation rates are 0.33, 0.45, 0.15, and
a. What asset amount will be reported on the balance sheet?b. What liability will be reported on the balance sheet? RestJet is planning to lease an Airbus 320 aircraft for $10 million per year for
RestJet is a regional airline based in Bangalore, India. It operates services between three Indian destinations and is considering leasing a CRJ-700. The lease would run for eight years and require
An airline manager has decided to buy an aircraft. Two alternative financing methods are available: use a financial lease, or purchase the aircraft using owner financing and borrowed capital. The
DirectJet is evaluating a lease agreement for an aircraft push truck that costs $150,000 and falls into the MACRS five-year class. DirectJet is in a 35 percent tax bracket, and can borrow the money
On January 1, 2015, DirectJet leased a DASH-8 from a leasing company. The lease agreement specifies four annual payments of $1 million beginning January 1, 2015, the inception of the lease, and then
percent interest. The airline uses the three-year MACRS depreciation and is in a 38 percent tax bracket. The other alternative is to sign an operating lease agreement for annual payments of $100,000
Prior to the introduction of jet ways or jet bridges, passengers usually walked along the tarmac and boarded an aircraft by climbing a set of movable stairs. Jet bridges have been installed at many
Explain the responsibilities and functions of the lessee and lessor in an aircraft lease agreement.
What are the four conditions that can create a capital lease?
What factors tend to make lessors prefer long-term leases, all else being equal?
What factors tend to make airlines prefer short-term leases, all else being equal?
How does the analysis of a sale-and-leaseback differ from buy-vs.- lease analysis?
Assume that both EZjET and DirectJet are practically identical airlines. The only difference between them is that EZJET leases most of its aircraft, whereas DirectJet owns all of its aircraft and
What are the differences between a wet lease, an operating lease, and a financial lease?
Aero Parts National (APN) is considering going to a different supplier for a landing gear part. The present supplier charges $1,000 per unit and requires minimum quantities of 490 units. The annual
For almost 80 years, JetGo has been refining and supplying jet fuel for general aviation aircraft. The company wants to determine the optimal order size and total inventory cost for one important
EZJET purchased jet fuel with an invoice price of $9 million and credit terms of "2/10, Net 30." What is the net cost of the jet fuel if EZJET pays within the discount period?
The following data relates to V-Fuel Aircraft: Minimum cash balance = $10,000 Standard deviation of daily cash flows = $2,000 per daya. b. Transaction cost of buying and selling the securities = $45
A product has a constant demand of 200 units per week. The cost to place an order for inventory is $4,000. The holding cost for a unit in inventory is $0.16 per week.a. Find the optimal lot size.b.
V-Fuel Aircraft is a limited service fixed-base operator (FBO) owned and operated by V-Fuel Inc. The company handles a variety of major functions at Wilkes-Barre/Scranton International Airport, such
Aero Parts National (APN) is manufacturing aircraft parts and avionics. Consider a landing gear part that APN carries: APN sells 2,700 of these parts per year and places an order for 600 of them at a
DirectJet utilizes the Baumol model to estimate its cash balance. The airline requires $5 million in cash each time it transacts marketable securities. What is the average cash balance if the holding
What is the transaction cost for cash as an asset?
Describe the three levels of the ABC inventory system, and provide examples of inventory that would be classified in each category.
An airline maintenance, repair, and overhaul (MRO) facility currently holds an inventory of 20 aircraft parts worth $80,000. Assuming an annual demand of 150 units for the part, an order cost of
An airline is being offered credit terms of "3/15, Net 45" for a $225,000 invoice. Assuming an opportunity cost of 3 percent, should the airline accept the credit terms?
An aircraft seat manufacturer generates $500,000 in monthly sales, with 95 percent of sales done on credit. Assuming that the cost of debt is 6 percent, what is the manufacturer's monthly cost of
Describe the difference between the operating cycle and the cash conversion cycle.
What assumptions are made in calculating the EOQ? Which of these assumptions is the least realistic? Why?
What is the economic order quantity (EOQ), assuming that the annual demand for cash is $1 million, the cost of converting marketable securities to cash is $1,000 per transaction, and the
What are the four basic problems an airline may experience with cash management?
What costs or disadvantages might be associated with firms maintaining cash balances that are too large?
Why is it important for a company to minimize the length of its cash conversion cycle?
What costs or disadvantages might be associated with firms maintaining cash balances that are too small?
What are the three reasons why an airline will hold cash? Provide an example of each reason.
Describe the typical cash conversion cycle for an airline in relation to the calendar year.
EZJET has a capital structure of 60 percent debt and 40 percent equity. Debt can be issued at a return of 12 percent, while the cost of equity for the airline is 16 percent. EZJET is considering a
Given the following information, what is the WACC for the firm in question?
Obtain the latest US Securities and Exchange Commission (SEC) 10-K filing for United Airlines and, using the two-year income statement (excluding special items if necessary), calculate the
EZJET and DirectJet have the following capital structures. Airlines EZJET Debt Preferred stock 35% 10% Common equity 55% DirectJet 65% 15% 20% Calculate the WACC for each airline.
The following data relates to a new fixed-base operator (FBO) at a terminal in Toronto.
What is the definition of the marginal cost of capital (MCC)?
Calculate the after-tax cost of debt for each of the following airlines.
Calculate the after-tax cost of debt for each of the following airlines?
What does it mean for an airline to be leveraged operationally or financially?
DirectJet has a target capital structure of 55 percent common stock, 15 percent preferred stock, and 40 percent debt. Its cost of equity is 10 percent, the cost of preferred stock is 5 percent, and
Delta Air Lines has a very high debt ratio. Visit http://ir.delta.com/stoc- k-and-financial/sec-filings/default.aspx and access the latest annual report.
Assume that krf = 4% and km = 10%. Calculate the required rate of return ke for the following beta values.
Discuss the five areas that affect business risk and identify these factors for the airline industry.
Calculate the WACC for EZjET assuming the following information.The airline has debt outstanding at $1.1 billion and LIBOR is +2.75 percent.The airline has 20 million shares of preferred stock
EZjET has a target capital structure of 40 percent debt and 60 percent equity. The yield to maturity on the company’s outstanding bonds is 10 percent and the airline’s tax rate is 40 percent.
What is the market value of a $1,000 face value bond that pays an annual interest rate of 6.5 percent, with seven years to maturity, assuming the current market rate to be 2.75 percent? Is this bond
Discuss the topic of debt securitization. Generally, why is secured debt cheaper than unsecured debt? Why is convertible debt generally cheaper than unsecured debt?
What is the cost of retained earnings assuming that an airline retains 95 percent of its earnings, its cost of equity is 14.25 percent, and it has a current stock price of $5 per share?
What is the cost of equity for an airline with a stock price of $16 per share and an annual dividend of $1.25 per share that is:not expected to grow?expected to grow at a constant rate based on its
What generalizations might be made about the US airline industry after analyzing the market capitalization of the major airlines?
Why could it be argued that market capitalization is the best measure of an airline’s size rather than available seat miles (ASM) or number of aircraft operated?
Why does the value of a share of stock depend on dividends?
EZjET regularly pays dividends to its shareholders. Under what circumstances may the airline choose not to pay dividends?
DirectJet has recently issued 10 million zero-coupon bonds. Knowing that zero-coupon bonds pay no interest, how does an investor expect to earn a positive return on DirectJet’s bonds?
Could rumors of financial distress lead to a higher cost of capital? Do you think that an airline must actually declare bankruptcy to experience the higher costs associated with bankruptcy?
Add into the table the sales revenue, fixed costs, variable cost, total cost, and profit, basing your calculations on the following information. The average price of the aircraft is $350 million. The
Compute the payback period and the discounted payback period for a project with the following cash flows, if the company's discount rate is 8 percent:
Exec Air Daytona (EAD) is a fixed-base operator (FBO) providing aeronautical services such as fueling, hangar space, tiedown and parking, aircraft rental, and aircraft maintenance at a regional
DirectJet is considering whether to purchase a push truck produced by a local manufacturer or to import one. The cost of each machine is $50 million, with an expected five years of life and
EZJET has a direct flight between Cairo, Egypt, and Amman, Jordan. The airline is planning to add an additional Airbus A-320 to this route.
Fly-Happy Airlines (FHA) is considering a project with the following cash flows: CFO CF1 ($8,000,000) $2,000,000 CF2 CF3 $3,400,000 $4,000,000 FHA has a policy of rejecting outright all projects that
What is the difference between economic and accounting breakeven?
percent and it evaluates all projects on a cash-flow basis.a. Calculate the payback period for the aircraft. If the airline requires all projects to be paid back in three years, would the project be
DirectJet Airlines is planning to purchase a used B-757 for $10 million. Consider the following revenues and costs schedule, if the airline's cost of capital is
What is the difference between replacement and expansion projects?
Ryanair, one of the largest European airlines in terms of passenger numbers, has enjoyed rapid growth since its establishment in 1985. It has 199 Boeing B-377, with 113 back orders. Assume that a
A survey has been commissioned by the Wi-Fi Alliance Association, a trade group representing companies in the industry, indicating the needs of frequent business travelers to use inflight wi-fi. As a
DirectJet has installed 30 electronic kiosks at its Pittsburg hub. The kiosks enable passengers to check in, to view seat assignments, to make seat changes, to review itineraries, and to print
What is the net present value (NPV) profile?
DirectJet has sales of $200,000, net income of $9,000,000, total assets of $80,000,000, and shareholders' equity of 40,000,000.a. What is the return on assets?b. What is the profit margin? C. What is
Access the most current income statement and balance sheet of Ryanair. Calculate the following rates and state whether Ryanair management would like to see the ratio move upward or downward, or hold
percent, return on equity is 24.4 percent, current liabilities are $900 million, and sales are $5,600 million. What is the amount of the firm's net fixed assets?
EZJET has a long-term debt ratio of 0.85 and a current ratio of 1.30. Profit margin is
If DirectJet has an equity multiplier of 1.78, total asset turnover of 1.12, and a profit margin of 9 percent, what is its return on equity?
As an airline financial analyst, your forecast of 2015 for DirectJet is as follows.
How can high-risk, low-return-on-assets industries such as airlines attract capital?
Obtain the latest SEC 10-K filing for GOL Linhas Areas Inteligentes and calculate the following metrics for the most current period, then determine which areas of the airline require more attention:
Using the following financial data for EZjET Airlines, construct the DuPont system and determine which areas of the airline require additional analysis.
Describe common-size financial statements and explain why they are used.
Describe the DuPont system of analysis, and explain how it could be used to evaluate an airline's performance and identify corrective actions that may be necessary.
Describe the Z-score suggested by Altman and calculate the Z-score for DirectJet Airlines, based on the following financial ratios: Sales = 0.90 Total assets Market equity =0.10 Debt EBIT =0.10 Total
Which financial leverage measure might be more desirable to evaluate Southwest Airlines' ability to pay its debt? Discuss the limitations of ratio analysis.

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