1. Develop a revenue management (maximizing) model based on the information given in the scenario.
2. How many seats should be allocated to each of the 16 itineraries to maximize revenue?
3. What is the (maximum) expected revenue to be earned per day for all 16 flights?
4. Assume operating costs for each of the legs is as follows:
   1. Leg 1 = $20,250
   2. Leg 2 = $19,750
   3. Leg 3 = $20,500
   4. Leg 4 = $19,500

What is the expected operating income for each of the legs? And in total for Freedom Airlines, given these 16 itineraries?

Capital Budget Case 2 3 4 5 6 7 8 -100,000 -35,000 Year Equipment Salvage 10% Working Capital Release of Working Capital Sales at 45 less: Variable Cost less: Advertising Cost Other Fixed Costs, Salaries Profit or Loss add: Depreciation Net Cash Inflow/Outflow PV Factor at 18% Net Present Value 9 180,000 100,000 70,000 127,500 -117,500 7,500 -135,000 -110,000 0.847 -135,000 -93,220 10 11 12 315,000 175,000 70,000 127,500 -57,500 7,500 -50,000 0.718 -35,909 Total 450,000 250,000 50,000 127,500 22,500 7,500 30,000 0.609 18,259 540,000 300,000 40,000 127,500 72,500 7,500 80,000 0.516 41,263 540,000 300,000 40,000 127,500 72,500 7,500 80,000 0.437 34,969 540,000 300,000 40,000 127,500 72,500 7,500 80,000 0.370 29,365 540,000 540,000 300,000 300,000 40,000 40,000 127,500 127,500 72,500 72,500 7,500 7,500 80,000 80,000 0.314 0.266 25,114 21,283 10,000 35,000 540,000 540,000 540,000 540,000 300,000 300,000 300,000 300,000 40,000 40,000 40,000 40,000 127,500 127,500 127,500 127,500 72,500 72,500 72,500 72,500 7,500 7,500 7,500 7,500 80,000 80,000 80,000 125,000 500,000 0.225 0.191 0.162 18,036 15,285 12,954 17,152 -30,180 0.137 Net Present Value is -30,180 Because of the negative net present value, the product is not a profitable venture. Had the NPV been a positive number, we could have possibly investigated the item further. However, after doing the calculations, we can see that we'd lose money. Capital Budget Case 2 3 4 5 6 7 8 -100,000 -35,000 Year Equipment Salvage 10% Working Capital Release of Working Capital Sales at 45 less: Variable Cost less: Advertising Cost Other Fixed Costs, Salaries Profit or Loss add: Depreciation Net Cash Inflow/Outflow PV Factor at 18% Net Present Value 9 180,000 100,000 70,000 127,500 -117,500 7,500 -135,000 -110,000 0.847 -135,000 -93,220 10 11 12 315,000 175,000 70,000 127,500 -57,500 7,500 -50,000 0.718 -35,909 Total 450,000 250,000 50,000 127,500 22,500 7,500 30,000 0.609 18,259 540,000 300,000 40,000 127,500 72,500 7,500 80,000 0.516 41,263 540,000 300,000 40,000 127,500 72,500 7,500 80,000 0.437 34,969 540,000 300,000 40,000 127,500 72,500 7,500 80,000 0.370 29,365 540,000 540,000 300,000 300,000 40,000 40,000 127,500 127,500 72,500 72,500 7,500 7,500 80,000 80,000 0.314 0.266 25,114 21,283 10,000 35,000 540,000 540,000 540,000 540,000 300,000 300,000 300,000 300,000 40,000 40,000 40,000 40,000 127,500 127,500 127,500 127,500 72,500 72,500 72,500 72,500 7,500 7,500 7,500 7,500 80,000 80,000 80,000 125,000 500,000 0.225 0.191 0.162 18,036 15,285 12,954 17,152 -30,180 0.137 Net Present Value is -30,180 Because of the negative net present value, the product is not a profitable venture. Had the NPV been a positive number, we could have possibly investigated the item further. However, after doing the calculations, we can see that we'd lose money