Answer:
Consider the following analysis.
Explanation:
A capital budgeting decision for Southwest airline should consider the following aspects: -
Assessment of the cash flows gained on investment into the Cuba market adjusted for time value of money. This evaluation of profitability, assessment of demand in Cuba, assessment of investment per traffic unit in Cuba forms an integral part of the investment decision. Major methods to evaluate profitability are NPV (Net Present Value) and IRR (Internal rate of Return). The NPV method calculates the difference in the initial investment and present value of cash flows over the period of the project. IRR method considers the discount rate at which NPV of project cash flows is zero. A project with positive NPV and higher IRR is considered.
The proposed investment should ensure that the interests of all stakeholders are safeguarded i.e Creation of Value proposition for shareholders as well as ensuring timely repayments to existing lenders of the project
.
Raising of capital for the Cuba project considering the company’s existing policies on debt and equity and cost benefit analysis. An equity funding would be costlier alternative than debt funding. However, a debt funding may increase the risk of lowered post tax profits and decreased returns to the shareholders, while an equity funding would allow the company an option in deferring the distribution of the profits or part-distribution of profits to the shareholder by deciding on the dividend payout ratio.
Management of aircrafts and other major assets of the company – The company should ensure that the existing aircrafts are effectively utilized for providing the airline services in Cuba. Acquisition of additional aircrafts along with other assets (warehousing facility for repairs etc.) should also be taken into consideration.
An adequate working capital management ensuring smooth day to day operations should be undertaken. This includes management and allocation of funds for day to day operations like fuel expenses, airport operating charges, repair and maintenance of aircrafts etc.
Answer:
A. True
Explanation:
Arbitrage refers to a situation wherein a gain is made owing to price discrepancy or unevenness in two markets. The rule for arbitrage is to buy from the markets where price is less and sell in the markets where price is higher.
Triangular arbitrage occurs wherein 3 different currencies are involved and the exchange rates are not uniform i.e a discrepancy exists and interest rate parity does not hold true.
Interest rate parity refers to the concept wherein the disparity between two currency exchange rates is adjusted by the respective interest rates of the two countries. When interest rate parity exists, no arbitrage is possible as markets are fairly priced.
Answer:
$628.49
Explanation:
Cash flows Discount factor Future value
$100 1.1449 $114.49
$200 1.07 $214
$300 1 $300
Future value $628.49
The discount factor is as follows
= (1 + interest rate)^number of years
For $100 the year is 2
For $200 the year is 1
For $300 the year is 0
Answer:
$4.4 million
Explanation:
The ending retained earnings of Lambert incorporation increases by $1.8 million
The net income earned during the year is $5.4 million
Therefore the amount of dividend declared and paid by Lambert incorporation can be calculated as follows
= $5.4 million - $1.8 million
= $4.4 million
No, lots of cases have no motives.