Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

McDonnell Douglas Aircraft Corporation manufactures the C-17, the newest jet transport used by the U.S. Air Force. The company sells the C-17 for a "flyaway cost" of $175 million per jet. The variable production cost of each C-17. The variable production cost of each C-17 was estimated to be approximately $165 million. When the C-17 was first proposed, the Air Force expected to eventually purchase 400 jets. However, following the collapse of the former Soviet Union, the projected total purchase volume dropped to just 300 jets, then 200, then 150, and finally 120 jets.
Production began, and at one point the company was faced with the following situation. With 20 jets finished, a block of 20 more in production, and funding approved for purchase of a third block of 20 jets, the US Congress began indicating that it would approve funding for the order and purchase of only 20 more jets (for a total of 80). This was a problem for the company because company officials had indicated previously that the break-even point for the C-17 project was around 100 aircraft.
Because the company is headquartered in St. Louis, all the members of Congress from Missouri rushed to the company's aid and now at least 120 C-17s will be ordered.
a. Assume that McDonnell Douglass must cover its fixed cost of $1 billion. Compute the actual break-even point for the C-17.
b. What would the income or loss be if the company only sold 80 C-17s?
c. Assume that McDonnell Douglas had been told up from that the Air Force would buy only 80 jets. find out the selling price per jet that the company would have to charge to achieve a target profit (before tax) of $10 million per jet.
d. Because McDonnell Douglas must provide its stockholders an acceptable return on their investment, how should the company manage the risks of projects such as the C-17 becoming a very big and expensive mistake?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M927663

Have any Question? 


Related Questions in Basic Finance

1 present value of annuity what formula is used to

1. Present Value of Annuity. What formula is used to determine the present value of an annuity? What does the present value of an annuity indicate? 2. Future Value of Annuity. How would you modify the FVA equation to det ...

1 define a multinational corporation mnc what additional

1. Define a multinational corporation (MNC). What additional factors must be considered by the manager of an MNC that a manager of a purely domestic firm is not forced to face? 2. Who are the major players in foreign cur ...

1 discuss some of the major issues to consider when

1. Discuss some of the major issues to consider when choosing between an active or passive exporting strategy. 2. You work for a small company that has an innovative low-cost production method for high-capacity jump driv ...

Discussion questionliabilities please respond to the

Discussion Question "Liabilities" Please respond to the following: • Let's use this discussion to study bonds together. Assume the following information for a bond issue: ABC Company issues the bonds at a face value of $ ...

1 distinguish between construct and criterion-related

1. Distinguish between construct and criterion-related validity. 2. Distinguish between convergent and discriminant validity. Do these terms refer to types of construct validity or criterion-related validity?

What precautions must one take when using ratio analysis to

What precautions must one take when using ratio analysis to make financial decisions? Which ratios would be most useful for a financial manager's internal financial analysis? For an analyst trying to decide which stocks ...

How is the practice of risk management similar to hedging

How is the practice of risk management similar to hedging and how is it different? Identify why risk management can be beneficial to stockholders ? Explain the difference between market risk and credit risk. Are techniqu ...

We are going through financial crisis seven years have

We are going through financial crisis. Seven years have passed and we are still in recovery stage. Based on the analysis in the class, can you suggest and elaborate an alternative way to deal with the financial crisis?

Ethical dilemma the irs tax code allows for the deduction

Ethical Dilemma. The IRS tax code allows for the deduction of expenses incurred in traveling to a job interview. Sean, Erica, and their two children have used this deduction to fund their vacations for the last eight yea ...

You have the following information on universe it ts inc

You have the following information on Universe It Ts, Inc.: sales to working capital = 19 times, profit margin = 26.9%, net income available to common stockholders = $4.9 million, and current liabilities = $1.9 million. ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen