Discussion Questions

As the quantities of aircraft and people change in the Don Burr Case, what happens to other variables, such as:

• Length of the Workweek?

• Employee Retention?

• Experience of Employees?

• Customer Satisfaction?

• Capacity?

• Demand?

• Revenue?

• Net Income (Profitability)?

• Share Price?

Net Income + Market Value (\$ Million) Quarter Employees Per Plane Stock Price Quarter You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in milions of dollars) for the project are as follows: On the basis of the behavior of the firm's stock, you belleve that the beta of the firm is 1.48 . Assume that the rate of return available on risk-free investments is 6% and that the expected rate of return on the market portiolio is 16%. a. What is the project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. What is the cost of capital for the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Does the accept-reject decision using IRR agree with the decision using NPV? Yes No Customer Service Quality 1.2 1 c00.8 yg0.6 0.4 0.2 0 Quarter Ratio of Peoples Fare to Average Competitor Fare (\$/Seat Miles) Total Aircraft Quarter Revenues (\$Million/year) Quarter Load Factor (\%) Quarter