Question 3 (1 point) Eagle airlines owns and operates 3 small twin engine airpla

Question

Question 3 (1 point) Eagle airlines owns and operates 3 small twin engine airplanes in a small community in easter United States. It offers both scheduled and charter flights. It is considering expanding its flee with a used Piper Seneca offered for $95K. Eagle Airlines believes it can successfully counter at $85K to $90K. An investment alternative to the fourth plane would be a fixed income instrument paying 8%. Projected financial impact of the new aircraft is calculated as follows: TotalRevenue- Revenue Charters Revenue Schedule Flights -%charter" Hours"CharterPrice)+(1- %charter)"Hours"TicketPrice* Passengers"capacity FinanceCost = (Price*%financed" Rate) TotalCost- Hours*OperatingCost+Insurance+FinanceCost Profit TotalRevenue - TotalCost From a one-way sensitivity analysis, which inputs are positively correlated with profit? Base Low High 2 Hours Flown 3 Capacity 4 Ticket Price 5 Charter Price 6 Charter Proportion 7 Operating Cost 8 Insurance 800 50% $100 $325 50% $245 $20,000 $87,500 11.5% 500 40% $95 $300 45% $230 $18,000 $85,000 10.5% 1000 60% $108 $350 0% $260 $25,000 $90,000 13.0% Aircraft Price 10 Interest Rate

Explanation / Answer

Profit = Total Revenue - Total Cost

Inputs that are positively related with Profit are -

All other inputs operating cost, proportions of chartered flights, insurance, interest rate and aircraft price all leads to increse in total cost thus having negative correlation with profit.

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