Lemons Paula FIN 86505 Assignment 15
Case Study: S & S Air Goes International
Paula Gray Lemons
California Southern University
Corporate Finance/ FIN 86505
November 16, 2014
Dr. Mitchell Miller
Case Study: S & S Air Goes International
Summary of the Existing Facts
The owners of S & S Air, Mark Sexton and Todd Story, are in discussions with an aircraft dealer, Amalie Diefenbaker, in Europe that want to purchase the Eagle airplane to add to their current retail line. While the Eagle sells for $78,000, its variable cost is $60,000 per airplane.
The dealer in Europe feels that she will be able to sell the planes at rate of fifteen (15) per month in Europe. The sales will be in the Euro currency. Amalie wants to purchase the Eagle at 60.000 Euros per plane. If S & S Air accepts her proposal, she will order fifteen (15) airplanes immediately to cover the sales for the first month; however, she will need a ninety (90) day payment terms to pay for them in full. Amalie wants to continue this payment schedule each month (Ross, Westerfield, & Jordan, 2011).
Issues/Problem Identification
Mark and Todd have doubts about what financial risks that they will encounter selling their planes in Europe; although, they have confidence in their ability to handle the extra volume without having to make any changes to their current facilities (Berk & DeMarzo, 2011).
Another issue is that they need to be able to identify what pros and cons that they will meet with the selling international. As well, what are the risks that the S & S Air will face with this new venture? In addition, what impact does the changes in the dollar if it weakens or strengthens on the profits of the company (Ross, Westerfield, & Jordan, 2011)? Moreover, to accept or decline the proposal, S & S Air needs to know the projected gains or losses that will occur at the exchange rate of €1,30 and what is the impact if the exchange rate increases to €1,37. As well, what will be the exchange rate that company achieves breakeven (Ross,
Paula Gray Lemons
California Southern University
Corporate Finance/ FIN 86505
November 16, 2014
Dr. Mitchell Miller
Case Study: S & S Air Goes International
Summary of the Existing Facts
The owners of S & S Air, Mark Sexton and Todd Story, are in discussions with an aircraft dealer, Amalie Diefenbaker, in Europe that want to purchase the Eagle airplane to add to their current retail line. While the Eagle sells for $78,000, its variable cost is $60,000 per airplane.
The dealer in Europe feels that she will be able to sell the planes at rate of fifteen (15) per month in Europe. The sales will be in the Euro currency. Amalie wants to purchase the Eagle at 60.000 Euros per plane. If S & S Air accepts her proposal, she will order fifteen (15) airplanes immediately to cover the sales for the first month; however, she will need a ninety (90) day payment terms to pay for them in full. Amalie wants to continue this payment schedule each month (Ross, Westerfield, & Jordan, 2011).
Issues/Problem Identification
Mark and Todd have doubts about what financial risks that they will encounter selling their planes in Europe; although, they have confidence in their ability to handle the extra volume without having to make any changes to their current facilities (Berk & DeMarzo, 2011).
Another issue is that they need to be able to identify what pros and cons that they will meet with the selling international. As well, what are the risks that the S & S Air will face with this new venture? In addition, what impact does the changes in the dollar if it weakens or strengthens on the profits of the company (Ross, Westerfield, & Jordan, 2011)? Moreover, to accept or decline the proposal, S & S Air needs to know the projected gains or losses that will occur at the exchange rate of €1,30 and what is the impact if the exchange rate increases to €1,37. As well, what will be the exchange rate that company achieves breakeven (Ross,
References: Berk, J., & DeMarzo, P. (2011). Corporate finance: the core. (2nd ed.). Boston: Pearson Education. Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2011). Essentials of corporate finance. New York: McGraw-Hill/Irwin.