Two Small Airlines Provide Shuttle Service Between Las Vegas and Reno

question 44

Multiple Choice

Two small airlines provide shuttle service between Las Vegas and Reno. The services are alike in every respect except that Fly Right bought its airplane for $500,000, while Fly by Night rents its plane for $30,000 a year. If Fly Right were to go out of business, it would be able to rent its plane to another airline for $30,000. Which airline has the lower costs?

• A) Fly Right.
• B) Fly by Night
• C) Neither, the costs are identical.
• D) Neither, Fly by Night has lower costs at small output levels and Fly Right has lower costs at high output levels.

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Definitions:

Moody's

A credit rating agency that evaluates the creditworthiness of borrowers, ranging from governments to private enterprises, and assigns ratings that reflect the risk of default.

Junk Bonds

High-risk, high-yield bonds rated below investment grade by credit rating agencies, often issued by companies with poorer credit ratings.

High-yield

Bonds that offer higher interest rates because they have lower credit ratings, reflecting a higher risk of default.

Rating

An assessment of the credit worthiness of a borrower in terms of their ability to pay back the debt, often applied to countries, companies, or individuals.