Economy Shipping Company
It is recommended that Economy Shipping Company (ESC) replace the
steamboat, Cynthia, with a new diesel powered boat.
The analysis assumed no operating cost in 1950. Although ESC was
presumably still in service during this analysis, the costs associated
with the project evaluation were not accounted for until 1951. It was
also implicit in the NPV calculations that any upgrade required
subsequent to 1950 could be performed without any interruption to the
daily operations and were performed at the beginning of the year.
Therefore, the stoker upgrade and the engine replacements were
considered on Jan 1st of the intended year and did not require any
downtime for the installation.
The evaluation considered four different scenarios:
1. Rehabilitation of Cynthia with the stoker conversion occurring in
1950
2. Rehabilitation of Cynthia with the stoker conversion occurring in
1952
3. Purchase of a new diesel-powered boat with 2 shifts, 12-hour
working day
4. Purchase of a new diesel-powered boat with 3 shifts, 8-hour working
day
Since ESC was considering other projects with a rate of return of 10%,
each of the above options were considered using the same rate of
return. The company?s balance sheet suggests that management was very
conservative. The debt-to-equity ratio in 1950 was 0.075, indicating
that the company could easily borrow at the going rate of 3% without
fear of bankruptcy. Moreover, the company had sufficient funds to
purchase four new diesel-powered boats. Overall, ECS was in a very
strong position to quickly upgrade their fleet and gain any advantage
that may come with the new diesel-powered boats.
The influence of the union to change the working hours for the crew
members is noteworthy in this analysis. If the union succeeded, the
steamboats would not be capable of accommodating the 3-shift
requirement and therefore be noncompliant with the new regulation. If
the new regulation had fines associated for any vessel not in
compliance with the new guidelines, the results for the steamboat
scenarios would only get worse. In this case, the diesel-powered
boats could accommodate the anticipated ruling and therefore continue
to operate without fear of being unlawful.
Another disadvantage against rehabilitating Cynthia was its age. At
the time of the decision the steamboat had already been in operation
for 23 years. Although, the realizable cost to renovate the steamboat
was already known, the intangible aspect of this alternative was the
status of the boat once refurbished. It should be noted that with
any overhaul, there are still aspects to the boat that will remain
?old? and will eventually fail. The maintenance and repairs listed in
Rocket-Blast, LLC, a beverage maker, has seen its profit margins reduced which presents a real problem for the company going forward (Precord & Macdonald, nd). Management has decided that operating costs must be reduced in order to increase profit margins to
There are many instances in Ken Mitchell's play The Shipbuilder, where the main character Jaanus Karkulainen, insists on being called by his Finnish name Karkulainen. In the play, many characters call him Johnny Crook. This situation creates controversy about names and shows how important names are to some people. Jaanus and Jukka create most of this controversy.
Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.
Frontier airlines marketing utilizes the 4Ps within the constraints that were listed in the module slides. The product, for all intents and purposes, is the seat, in motion from one place to another. If that seat goes unfilled, it is not stored for later use, but goes bad, like fruit. This is a similar issue of production that hotels face. The unit is constantly produced and expiring, with no option not to produce it if it will not be sold (with the exception of scaling back service on, or closing, a route. Additionally, it is a consumer based product, so frontier needs to be sensitive to the desires of the customer, because there are many choices when flying into and out of Denver.
The topic in which I chose to do a scrapbook on was “How the government affects the airline industry in Canada”. Specifically I chose articles that related to the aftermaths of the September 11th tragedy. This event affected airlines in an enormous manner. Many airlines were facing economical problems and in turned asked the government for assistance. As a result, Canada 3000, which was Canada’s second largest airline carrier filed for bankruptcy protection on October 11th.
The seventh largest major domestic airline in the United States (US), Southwest Airlines, is commonly known or referred to as a low-cost carrier. Southwest Airlines is the only major airline that provides short-haul, point-to-point service in the United States. In fact it was the first airline of its type ever started; it has become the archetypical low-cost airline. The idea has proven itself so well, that other start-up airlines have based their company strategies upon the basics of Southwest. Today, there are two other low-cost air carriers (the other two airlines are considered national airlines and not major airlines) that are actively and aggressively competing with Southwest Airlines for business and profit turning. The three American low-cost air carriers are currently posting profits even in light of the US economy’s current state of affairs, with Southwest Airlines first, JetBlue second, and Air Tran third, in profits. How is this possible when the major six airlines are reporting losses of millions and millions of dollars each quarter? The answer to this question begins about 30 years ago.
In assessing Du Pont’s capital structure after the Conoco merger that significantly increased the company’s debt to equity ratio, an analyst must look at all benefits and drawbacks of a high debt ratio. The main reason why Du Pont ended up with a high debt to equity ratio after acquiring Conoco was due to the timing and price at which they bought Conoco. Du Pont ended up buying the firm at its peak, just before coal and oil prices started to fall and at a time when economic recession hurt the chemical industry of Du Pont. The additional response from analysts and Du Pont stockholders also forced Du Pont to think twice about their new expansion. The thought of bringing the debt ratio back to 25% was brought on by the fact that the company saw that high levels of capital spending were vital to the success of the firm and that high debt levels may put them at higher risk for defaulting.
Discounted Cash Flow Method takes the forecast free cash flows during forecasted horizon. Then we estimate the cost of capital (weighted average cost of capital) and estimate continuing value (value after forecast horizon). The future value is discounted to the present value. We than add back cash ($13 Million) and non-current assets and deduct total debt. With the information provided several assumptions had to be made to obtain reasonable values (life period of 30-years, Capital expenditures not to exceed $1 million dollars, depreciation to stay constant at $1.15 Million and a discounted rate of 10%). Based on our analysis, the company has a stand-alone value of $51 Million at the end of fiscal year end 1990 with a net present value of cash flows of $33 million that does not include the cash and non-current assets a cash of and non-current assets.
“Southwest Airlines ” Standard & Poor’s 12 Apr 2014: n. pag. S&P NetAdvantage. Web. 12 Apr. 2014.
2. Given the forecasts provided in the case, estimate the expected incremental free cash flows associated with Du Pont’s growth strategy and maintain strategy for the TiO2 market. How much risk and uncertainty surround these future cash flows? Which strategy looks most attractive (i.e., using the DCF (e.g., NPV) method)??
Maintenance for a 120 ton steamboat was $1,800, 36% of it was for wages paid to officers and crew members, 18% of it was for provisions, 12% of it was for incidentals and insurance, and the rest of it was for 25 cords of wood per day, at $2.
FedEx provides shipping services through FedEx Express, Ground, Freight, Custom Critical, Trade Networks, and Supply Chain (FedEx, 2014). Tracking and package management services are available for all services through fedex.com (FedEx, 2014). FedEx also shares knowledge of shipping best practices on its website (FedEx, 2014). FedEx Office is another division of FedEx, where customers have an in-store option for taking care of their shipping, copying, and printing needs (FedEx, 2014). FedEx connects our global economy by linking 99 percent of the world’s GDP (FedEx, 2014). FedEx Express services every US address, as well as 220 other countries (FedEx, 2014). Some of the corporation’s new services include FedEx Delivery Manager and One Rate (FedEx, 2014). FedEx Delivery Manager is a service that is tailored to the needs of the recipient of a package (FedEx, 2014). FedEx One Rate is simply that, flat-rate shipping without the weighing and measuring (FedEx, 2014).
There are three types of Preventive Maintenance Checks and Services (PMCS) that the military performs on their vehicles; they are, before, during, and after checks. These checks are annotated on DA form 5988-E, which is the Equipment Maintenance and Inspection worksheet. If anything looks wrong and you cannot fix it, write it on the DA form 5988-E and immediately report it to unit maintenance.
In April 1992, American Airlines launched "Value Pricing" -- a radical simplification of the complex pricing structure that had evolved over more than a decade following deregulation of the U.S. domestic airline industry. American expected that the new pricing structure would benefit consumers and restore profitability to both American and the industry as a whole. The critical issue raised is: Would American's bold initiative work?
Obviously, this case aims to evaluate Joanna’s analysis. Throughout the analysis, we will estimate the cost of debt, cost of equity, and cost of capital through different financial analysis models.