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

Question 1is there a way to determine which type of project

Question 1 Is there a way to determine which type of project (profitable or unprofitable) we have, without waiting until the actual results for comparison? Write in 150 words withREFERENCES. Question 2 What if one uses t ...

1 why is specialization so critical to distribution

1. Why is specialization so critical to distribution efficiency? 2. Describe how the process of assortment overcomes the problems created by specialization. 3. Given the principle of minimum transactions, explain why it ...

A common stock currently has a beta of 17 the risk-free

A common stock currently has a beta of 1.7, the risk-free rate is 7 percent annually, andthe market return is 12 percent annually. The stock is expected to generate a constant dividend of $6.70 per share. A pending lawsu ...

1 why do researchers use factor analysis2 imagine that you

1. Why do researchers use factor analysis? 2. Imagine that you conducted a factor analysis on a set of variables that were uncorrelated with one another. How many factors would you expect to find? Why?

1 name the four major classes of mortgage-related

1. Name the four major classes of mortgage-related securities. As an issuer, explain the reasons for choosing one type over another. 2. What is the major difference between a CMO and the other types of mortgage-related s ...

You buy a stock for 35 per share one year later you receive

You buy a stock for $35 per share. One year later you receive a dividend of $3.50 per share and sell the stock for $30 per share. What is your total rate of return on this investment? What is your capital gain or loss yi ...

What are current assets if a market is price efficienta

What are current assets? If a market is price efficient, a. Can an investor "beat the market"? b. Which type of portfolio management-active or passive-is best? What does the financing decision of a firm involve? List the ...

1 what is the required rate of return on a common stock

1. What is the required rate of return on a common stock that is expected to pay a $0.75 annual dividend next year if dividends are expected to grow at 2% annually and the current stock price is $8.59? 2. Inc. paid $.130 ...

The following excerpt if from the notes to the financial

The following excerpt if from the notes to the financial statements in the 2009 Annual Report of Bank of America (p. 147): The Corporation enters into trading derivatives to facilitate client transactions for proprietary ...

1 in what sense could one argue that if managers make

1. In what sense could one argue that if managers make decisions using breakeven analysis, they are not maximizing shareholder wealth? How can breakeven analysis be modified to solve this problem? 2. Explain the differen ...

  • 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