The world airline system is composed of the routes X and Y, each of which requires 14 aircraft. These routes can be serviced by three types of aircraft-A, B, and C. There are 7 type A aircraft available, 14 type B, and 14 type C. These aircraft are identical except for their operating costs, which are as follows: Annual Operating Cost ($ millions) Aircraft Type A Route X 1.53 Route Y 1.53 B C 2.53 4.53 2.03 3.53 The aircraft have a useful life of five years and a salvage value of $1.3 million. The aircraft owners do not operate the aircraft themselves but rent them to the operators. Owners act competitively to maximize their rental income, and operators attempt to minimize their operating costs. Airfares are also competitively determined. Assume the cost of capital is 9%. a-1. Which aircraft would be used on which route? a-2. How much would each aircraft be worth? b-1. Assume the number of type A aircraft increased to 14. Which aircraft would be used on which route? b-2. How much would each aircraft be worth? c-1. Assume the number of type A aircraft increased to 21. Which aircraft would be used on which route? c-2. How much would each aircraft be worth? d-1. Assume the number of type A aircraft increased to 28. Which aircraft would be used on which route? d-2. How much would each aircraft be worth?
The world airline system is composed of the routes X and Y, each of which requires 14 aircraft. These routes can be serviced by three types of aircraft-A, B, and C. There are 7 type A aircraft available, 14 type B, and 14 type C. These aircraft are identical except for their operating costs, which are as follows: Annual Operating Cost ($ millions) Aircraft Type A Route X 1.53 Route Y 1.53 B C 2.53 4.53 2.03 3.53 The aircraft have a useful life of five years and a salvage value of $1.3 million. The aircraft owners do not operate the aircraft themselves but rent them to the operators. Owners act competitively to maximize their rental income, and operators attempt to minimize their operating costs. Airfares are also competitively determined. Assume the cost of capital is 9%. a-1. Which aircraft would be used on which route? a-2. How much would each aircraft be worth? b-1. Assume the number of type A aircraft increased to 14. Which aircraft would be used on which route? b-2. How much would each aircraft be worth? c-1. Assume the number of type A aircraft increased to 21. Which aircraft would be used on which route? c-2. How much would each aircraft be worth? d-1. Assume the number of type A aircraft increased to 28. Which aircraft would be used on which route? d-2. How much would each aircraft be worth?
Chapter2: Building Blocks Of Managerial Accounting
Section: Chapter Questions
Problem 7EB: Case Airlines provides charter airline services. The fixed expenses to operate the companys aircraft...
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Transcribed Image Text:The world airline system is composed of the routes X and Y, each of which requires 14 aircraft. These routes can be serviced by three
types of aircraft-A, B, and C. There are 7 type A aircraft available, 14 type B, and 14 type C. These aircraft are identical except for their
operating costs, which are as follows:
Annual Operating Cost ($ millions)
Aircraft Type
A
Route X
1.53
Route Y
1.53
B
C
2.53
4.53
2.03
3.53
The aircraft have a useful life of five years and a salvage value of $1.3 million.
The aircraft owners do not operate the aircraft themselves but rent them to the operators. Owners act competitively to maximize their
rental income, and operators attempt to minimize their operating costs. Airfares are also competitively determined. Assume the cost of
capital is 9%.
a-1. Which aircraft would be used on which route?
a-2. How much would each aircraft be worth?
b-1. Assume the number of type A aircraft increased to 14. Which aircraft would be used on which route?
b-2. How much would each aircraft be worth?
c-1. Assume the number of type A aircraft increased to 21. Which aircraft would be used on which route?
c-2. How much would each aircraft be worth?
d-1. Assume the number of type A aircraft increased to 28. Which aircraft would be used on which route?
d-2. How much would each aircraft be worth?
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