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Delta Airlines has recently acquired a smaller regional airline. The following financial statements provide a snapshot of Delta's financial position post-acquisition. Income Statement for the

Delta Airlines has recently acquired a smaller regional airline. The following financial statements provide a snapshot of Delta's financial position post-acquisition.

Income Statement for the Year Ended December 31, 2023:

  • Sales revenue: $1,500,000
  • Cost of goods sold: $900,000
  • Gross margin: $600,000
  • Operating expenses: $300,000
  • Depreciation expense: $50,000
  • Operating income: $250,000
  • Non-operating items: $20,000
  • Net income: $230,000

Balance Sheet as of December 31, 2023:

  • Assets:
    • Cash: $50,000
    • Accounts receivable: $200,000
    • Merchandise inventory: $150,000
    • Equipment (less accumulated depreciation): $400,000
    • Total assets: $800,000
  • Liabilities:
    • Accounts payable: $150,000
    • Notes payable: $200,000
    • Total liabilities: $350,000
    • Stockholders' equity: $450,000

Required:

  1. Calculate the ROI for Delta.
  2. Delta's headquarters has $150,000 of funds to assign to its divisions, with a desired ROI of 10%. Calculate the new ROI for Delta if the funds are invested at an ROI of 12%.
  3. Assess the impact on the ROI if the funds are invested at an ROI of 8%.
  4. Discuss the potential benefits and risks of investing the additional funds in Delta.

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