Demand at each particular exchange rate, Financial Management

Assignment Help:

The usual number of passengers using the service is dependent upon the demand at each particular exchange rate.

At 1·52 Euro/£ expected demand = (0·33·)(500 + 460 + 420) = 460

At 1·54 Euro/£ expected demand = (0·33·) (550 + 520 + 450) = 506·67

At 1·65 Euro/£ expected demand = (0·33·) (600 + 580 +500) = 560

The expected demand is so

= (0·2) (460) + (0.5) (506·67) + (0·3) (560)

= 92 + 253·33 + 168

= 513·3 per train

= 1026·7 per day

(b)

WORKINGS

45% of passengers utilize the catering service spending $4.50 per head on average. Two trains are run daily for 360 days per year this give

28_Demand at each particular exchange rate.png

Gross catering receipts are below an average of £2200 per day so the 5% commission doesn't apply.

Contribution from the current service

Contribution £246985 per year

 

 

 

Cash Flows: In House Option

102_Demand at each particular exchange rate1.png

NET PRESENT VALUE = £220828

Cash Flows: Contract Out Option

662_Demand at each particular exchange rate2.png

NET PRESENT VALUE = £266350

This option therefore offers an NPV which is £45522 greater than the in-house option which means that profits could be increased by contracting out the catering service.


Related Discussions:- Demand at each particular exchange rate

Stream of expected returns, Stream of Expected Returns Investment retur...

Stream of Expected Returns Investment returns can take many forms. An investor must consider all these forms to evaluate an investment option accurately. A brief description of

Ffnace management, What is the monthly interest rate if the lease payments ...

What is the monthly interest rate if the lease payments are $24,000 per month for 24 months. The total value is $420,000

Does high operating leverage always mean high business risk, Does high oper...

Does high operating leverage always mean high business risk?  Explain. High operating leverage doesn't always mean high business risk.  If the company's sales are quite steady

Advantage to corporation of investing in working capital, What is the prima...

What is the primary advantage to a corporation of investing some of its funds in working capital?  By investing in working capital a firm acquires the liquidity it needs helpin

Explain the term- market penetration, Explain the term- Market penetration ...

Explain the term- Market penetration A strategy which pursues to increase sales of existing services or products to the same market. Price reduction strategies Aggre

Cost of preference equity-irr , 1.  Find out the present value of Rs. 10,00...

1.  Find out the present value of Rs. 10,000 to be required after 4 years if the interest rate is 6%. 2.  A Firm can invest Rs. 10,000 in a project with a life of three years.

Illustrate modern method of measurements, Q. Illustrate Modern Method of Me...

Q. Illustrate Modern Method of Measurements? Holding Period Yield: The holding period yield is one of the modern techniques on Measuring return. It serves two purposes: a) I

Why we measure a project''s risk as the change in the cv, Explain why we me...

Explain why we measure a project's risk as the change in the CV. We compute a project's risk as the change in the coefficient of variation for the reason that this focuses on t

Public financial statements of a company, Public Financial Statements of a ...

Public Financial Statements of a Company The final exercise is the valuation of a publicly held company's equity. You must base your valuation on the company's public financia

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd