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Leasing

Westcost Air Co. leases a single jet aircraft and operates between San Francisco and the Fiji. Flights leave San Francisco on Mondays and Thursdays and depart from Fiji on Wednesdays and Saturdays. Westcost Air Co. cannot offer any more flights between San Francisco and Fiji. Only tourist-class seats are available on its planes. An analyst has collected the following information: Seating capacity per plane 380 passengers Average number of passengers per flight 175 passengers Flights per week 4 flights Flights per year 208 flights Average one-way fare $325 Variable fuel costs $14,000 per flight Food and beverage service costs/passenger $4 per Commission to travel agents paid by Air Frisco 10% of fare (all tickets are booked by travel agents) Fixed annual lease costs allocated to each flight $53,000 per flight Fixed ground services (maintenance, check in, baggage handling) costs allocated to each flight $7,500 per flight Fixed flight crew salaries allocated to each flight $7,000 per flight Required: 1. Calculate the operating income that Westcoast Air earns on each one-way flight between San Francisco and Fiji. 2. The Market Research Department of Westcoast Air indicates that lowering the average one-way fare to $280 will increase the average number of passengers per flight to 212. Should the company lower its fare? Show your calculations. 3. Travel International, a tour operator, approaches Westcoast Air on the possibility of chartering (renting out) its jet aircraft twice each month, first to take Travel International's tourists from San Francisco to Fiji and then to bring the tourists back from Fiji to San Francisco. If Westcoast Air accepts Travel International's offer, Westcoast Air will be able to offer only 184 (208 â?" 24) of its own flights each year. The terms of the charter are as follows: (a) For each one-way flight, Travel International will pay Westcoast Air $75,000 to charter the plane and to use its flight crew and ground service staff; (b) Travel International will pay for fuel costs; and (c) Travel International will pay for all food costs. On purely financial considerations, should Westcost Air accept Travel International's offer? Show your calculations. What other factors should the company consider in deciding whether or not to charter its plane to Travel International?

Westcost Air Co. leases a single jet aircraft and operates between San Francisco and the Fiji. Flights leave San Francisco on Mondays and Thursdays and depart from Fiji on Wednesdays and Saturdays. Westcost Air Co. cannot offer any more flights between San Francisco and Fiji. Only tourist-class seats are available on its plan

John Smith Tax Issue for $300,000 fee and $25,000 of expenses

John Smith, Esq. I worked on this case for over two years. The jury awarded my client $2,000,000 in damages, of which my fee was $300,000 plus recovery of expenses paid up front in the amount of $25,000. How is the $300,000 taxed? What about the $25,000? What can I do to minimize the tax consequences of each? Also, I am th

Taxation for John Smith's $300,000 fee for a damage settlement case

John Smith - I worked on this case for over two years. The jury awarded my client $2,000,000 in damages, of which my fee was $300,000 plus recovery of expenses paid up front in the amount of $25,000. How is the $300,000 taxed? What about the $25,000? What can I do to minimize the tax consequences of each? Also, I am thinking ab

Lease Agreements

Krauss Leasing Company signs a lease agreement on January 1, 2011, to lease electronic equipment to Stewart Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1.Stewart Company has the option to purchase the equipme

Difference between lease payment and bank loan payment

Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a 5-year, $4,200,000 bank loan to finance service equipment. The loan has an interest rate of 10% and would be amortized over 5 years, with 5 end-of-year payments. Sutton can also lease the equipment for 5 end-of-year payments of $1,790,

This post discusses leasing/taxes, inflation, & interest.

Required: 6 line reponse to each question. Can you also provide APA references My Question: From a firms perspective, discuss how the following factors may affect the attractiveness of leasing as compared with other financing arrangements: i) Corporate tax rate ii) Inflation iii) Interest Rates.

Problem #3 Leasing

On January 1, 201x, Avery Accessories, Inc. entered into a 4 year, non-cancelable lease for a fleet of automobiles. The economic life of the vehicles are 4 years, and title transfers at the end of the leasing period, with bargain purchase price of $75,000. The lease calls annual payments of $150,000, beginning with the signi

Allied Metals, Inc., is Considering Leasing $1 Million Worth

A2. (Net advantage to leasing) Allied Metals, Inc., is considering leasing $1 million worth of manufacturing equipment under a lease that would require annual lease payments in arrears for five years. The net cash flows to lessee over the term of the lease (with zero residual value) are given here. Allied's cost of secured debt

financial analysis

Dixie Corporation is evaluating whether to lease or purchase needed equipment at a cost of $10,000. If the equipment is leased, the lease would not have to be capitalized. The company's balance sheet prior to the acquisition of the equipment is as follows. Equipment cost $10,000 Current Balance Sheet

Incremental profit, NPV, accounting rate of return, more

Thomas, Inc. estimates it will produce 1,200 homework machines during the next year with costs as follows: Direct materials $200 per unit Direct labor $240 per unit Variable overhead $160 per unit Fixed overhead (40% avoidable) $300 per unit An outside supplier has offered to produce the machines for Thomas for $700 a unit.

An asset is an expense waiting to happen.

ABC Inc. has just entered into the business of selling antique cars. The company management decided to lease the premises for the business instead of buying the office premises. They ended up paying an advance rent of $5 million dollars for the initial period of five years. The entire amount was recorded as an asset in the form

Cost Allocation Theory

Looking to understand the theory/logic/reasoning and/or implications that support the values arrived at for a.) thru e.). Durango Plastics: SCX is a $2 billion chemical company with a plastics plant located in Durango, Colorado. The Durango plastics plant of SCX was started 30 years ago to produce a particular plastic fi

MT425 AP2-11 Recording inventory-related costs; E4-1 Operating Leverage

See problem attached. MG425 Managerial financial Accounting Chapters 1 & 2, Chapters 4 & 5 AP2-11 Recording inventory-related costs Fill in the missing information E4-1 Operating leverage John Diaz owns Pacific Electric, a large electrical contracting firm.... Identify a way that John can turn potential fixed c

Tenant has a lease on an apartment through December of the current year. Tenant and Newtenant go to Landlord to have Newtenant take over the lease through the end of December. Landlord agrees and releases Tenant from any responsibility under the lease. This is a(n): A. substituted contract. B. accord and satisfaction. C. novation. D. mutual rescission.

Tenant has a lease on an apartment through December of the current year. Tenant and Newtenant go to Landlord to have Newtenant take over the lease through the end of December. Landlord agrees and releases Tenant from any responsibility under the lease. This is a(n): A. substituted contract. B. accord and satisfaction. C. nova

Phillip Morris (Altria) 2009 Annual Report Analysis

a. What is the composition of Phillip Morris' total long-term liability in current year? b. What is the Phillip Morris' Debt to Equity Ratio for current year and prior year? What does it express? Please show details for the numerator and denominator to receive full credit. c. What is the Phillip Morris' Times Interest Earned

Evaluating Decision-Making Scenarios Using Linear Profit and Cost Modeling

Please see attached file for questions. Vintage Cellars Vintage Cellars manufactures a 1,000-bottle wine storage system that maintains optimum temperature (55-57 °F) and humidity (50-80%) for aging wines. The system has a backup battery for power failures and can store red and white wines at different temperatures. The fo

sales-type lease

Sales-type leases and direct financing leases are two of the classifications of leases described in FASB codification, from the standpoint of the lessor. Compare and contrast a sales-type lease with a direct financing lease as follows: Gross investment in the lease. Amortization of unearned interest income. Manuf

Four Criteria to Be Treated as a Capital Lease

What are the four criteria used for determining if a lease is to be treated as a capital lease? Discuss the income statement and balance sheet implications of both a capital lease and an operating lease.

Managerial finance multiple choice questions

Problem: A currency trader observes the following quotes in the spot market: 1 U.S. dollar = 10.875 Mexican pesos 1 British pound = 3.955 Danish kro ...there is moreshow problem A currency trader observes the following quotes in the spot market: 1 U.S. dollar = 10.875 Mexican pesos 1 British pound = 3.955

Breakeven analysis and Degree of Operating leverage

See attachment. 1. Breakeven Analysis. The Midtown Filling Station is a gasoline retailer in Denton, Texas. Louie DePalma, proprietor of Midtown, has decided to prepare a financial analysis of the potential of a 24-hour convenience store operation. Opening such a center would require remodeling the filling station and the h

Lessee Entries and Balance Sheet Presentation; Capital Lease

January 1, 2008 Doss Company contracts to lease equipment for 5 years, agreeing to make a payment of $94,732 (including the executory costs of 6,000 a year) at the beginning of each year, starting January 1, 2008. The taxes, the insurance, and the maintenance, estimated at $6000 per year, are the obligations of the lessee. The

Lease or Buy Problem

Sandia Meadows, Inc wants to install $2.8 million of new equipment to update its ski lifts. The company can obtain a bank loan for 100% of the purchase price or it can lease the equipment. Assume the following: .The machinery falls into the MACRS 3 year class .Estimated maintenance expenses are $90k per year, payable at the

Finance: Beryl's Iced Tea machine, continue to rent, buy, buy new machine

Beryl's Iced Tea currently rents a bottling machine for $50,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options: a. Purchase the machine it is currently renting for $150,000. This machine will require $20,000 per year in ongoing maintenance expense.

Determining the present value of the lease

On January 1, 2010, Hershey Co. leased a machine for 5 years at an annual rental of $64,000, payable on the date of signing the lease and each December 31 thereafter. The machine has an estimated useful life of 8 years and no salvage value. Hershey Co. has an option to purchase the machine for $1at the end of the lease. The mark

Journal entries - noncancellable lease agreement (Carey, Inc.)

On January 1, 2010, Carey, Inc., entered into a noncancellable lease agreement, agreeing to pay $5,857 at the end of each year for 2 years to acquire a new computer system having a market value of $9,900. The expected useful life of the computer system is also 2 years, and the computer will be depreciated on a straight-line basi

IFRS: lease classification

IFRS: lease classification Airway leasing entered into an agreement to lease aircraft to Ouachita airlines. Consider each of the following a-e to be independent scenarios. A: The agreement calls for ownership of the aircraft to be transferred to Ouachita Airlines at the end of the lease term. B: the fair value of the aircraft