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521
MBA 15–4
The comparative metrics for Southwest Airlines and Delta Air Lines are summa-
rized below:
Southwest
Delta
Return on total assets .......................... 10.6% 8.4%
522
MBA 15–5
1. Return on Total Assets:
2. Return on Stockholders’ Equity:
3. Profit Margin:
Asset Turnover:
Financial Leverage:
523
CASES
Case 15–1
The plant manager wants a project to become accepted and places pressure
on the analyst to come up with the “right numbers.” Zuhair is right when he
This difficult issue revolves around the nature of ethical dilemmas. Erin has had a
brief tenure with the organization. Erin has little organizational clout and could
524
Case 15–2
1. Annual salary .............................................................................. $ 50,000
Present value of $1 annuity for 10 years at 10% ..................... × 6.145
2. Annual tuition at the beginning of the graduate year ............. $ (15,000)
0 1 2 3 4 5 6 7 8 9 10
3. Present value of graduate option .............................................. $325,271
Case 15–3
1. Since all the net cash flows are incurred in the local economy under this
assumption, the internal rate of return of the new plant will likely decline. This
2. If the plant produced for export only, then the expenses would be incurred in
local currency, and the revenues would be earned in U.S. dollars. This could
Case 15–4
In all three companies, the executives indicate that financial investment analysis
plays a minor role in the selection of projects because all three companies deal
526
Case 15–5
1. (All amounts are in millions.)
20Y5 cash flows:
Gross ticket sales ............................................................... $ 240
Net present value:
Present Value Net Cash Present Value of
Year of $1 at 20% Flows Net Cash Flows
527
Case 15–6
This activity could be assigned individually or in groups. This activity has the stu-
dent(s) perform a capital investment analysis for a printer/copier/scanner/fax
machine, using information available to them on the Internet and from local busi-
nesses. The actual answer depends on the actual numbers determined by the stu-
