An Airline Is Considering Adding a Flight from Chicago to Sioux

question 125

Multiple Choice

An airline is considering adding a flight from Chicago to Sioux Falls.Total cost of the flight is $5,500.Variable cost is $2,000.Revenue from the flight is expected to be $3,000.Should the flight be added?

• A)No, the revenue ($3,000) is below the cost ($5,500.) 
• B)No, the addition to profit is very small and not worth the effort.
• C)Yes, profit increases by $1,000 ($3,000 − $2,000.) 
• D)Yes, profit increases by $3,000.

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Definitions:

Required Rate

The minimum expected rate of return on an investment, set by investors based on risk levels and economic conditions.

Expected Growth Rate

The projected rate at which a company's earnings or revenue are anticipated to grow.

Annual Dividend

The total dividend payment a shareholder receives from a company in one year, based on the company's dividend distribution policy.

Expected Return

The anticipated return on an investment over a given period, factoring in all possible outcomes weighted by their probabilities.