Callison Airlines Is Deciding Whether to Pursue a Restricted or Relaxed

question 120

Multiple Choice

Callison Airlines is deciding whether to pursue a restricted or relaxed working capital investment policy. Callison's annual sales are expected to total $3.6 million, its fixed assets turnover ratio equals 4.0, and its debt and common equity are each 50 percent of total assets. EBIT is $150,000, the interest rate on the firm's debt is 10 percent, and the firm's tax rate is 40 percent. If the company follows a restricted policy, its total assets turnover will be 2.5.
Under a relaxed policy, its total assets turnover will be 2.2.
-What is the difference in the projected ROEs between the restricted and relaxed policies?

• A) 2.24%
• B) 1.50%
• C) 1.00%
• D) 0.50%
• E) 0.33%

Describe the regulatory and ethical considerations in pricing.

Identify the tactics used for competitive pricing and market positioning.

Explain the role of price elasticity in decision-making processes.

Understand the concept of price discrimination and its acceptability under specific conditions.

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Definitions:

Returns To Scale

The change in output resulting from a proportional change in all inputs (factors of production) in the long term, indicating whether the output increases, decreases, or stays the same.

Production Function

A mathematical expression that describes the relationship between inputs used in production and the output generated from those inputs.

Input

The resources used in the production process, such as labor, raw materials, and capital.

Returns To Scale

The change in output resulting from a proportional change in all inputs (factors of production) in the production process.