What is the total revenue and after-tax cash flow

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A small regional airline is performing sensitivity analysis to determine the effect of changes in the price of oil on its cash flow. Because of competitive market conditions, the airline cannot raise air fares if the price of oil increases but could lower fares if oil decreases. An increase in the per-barrel price of oil will consequently be absorbed by the firm, but a sizable decrease in the price of oil is anticipated to increase revenues. On particular routes, the firm estimates that 5 million passenger miles are recorded for 1 year. Each passenger mile generates $0.50 in revenue and $0.10 in after-tax cash flow, assuming that oil costs $19.00 per barrel. For each $1.00 increase in the per-barrel price of oil, after-tax cash flow drops by $0.02. For each $1.00 decrease in the per-barrel price of oil, one million passenger miles will be added.

  1. At $19.00 per barrel, what is the total revenue and after-tax cash flow?
  2. At $21.00 per barrel, what is the after-tax cash flow?
  3. At $17.00 per barrel, what is the after-tax cash flow?

Reference no: EM132420475

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