Instructions and questions Read the information provided about the company below. No need to research the...
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Instructions and questions Read the information provided about the company below. No need to research the company further on the internet as you won't have the time. Then answer these questions to the best of your ability: 1. Using the information provided, analyse each of the 2 dimensions of business risk of the company. Is sales risk high or low, and why? (3 marks). Is operational risk high or low, and why? (3 marks) 2. Based on your answer to (a), and from what you can determine about the current capital structure of the company, provide arguments why the company: • could potentially add debt; or why it should NOT add debt; or • why it should even think about reducing debt (assuming it has any). What would you advise overall? Please state your reasoning clearly. (2 marks) Please ensure explanations are professional with well reasoned arguments (2 marks). Note your answers have to specifically apply to the company in question and make reference to its situation and characteristics. If your answer equally applies to other firms, your answer is too generic. We do not expect you to have detailed knowledge of the company, but we expect you to make reasonable inferences from the text provided. You may make additional assumptions to bolster your arguments if you clearly state them. Suggested length: approximately half a page single spaced; point form allowed as long as you connect the points to the question. The company Before the pandemic, Qantas Airlines and its subsidiaries QantasLink and Jetstar operated nearly 300 airplanes and employed 30,000 employees. Its airplane leases amounted to $2B in total. These figures are typical for major international airlines. Revenue peaked in 2019 at $17B and fell to $6B in 2021. Net income was $1.5B in a particularly good year of 2016, almost $1B from 2017 to 2019, and negative $2.5B in 2020 and 2021 due to the pandemic. Qantas carries around $5B of net debt and its equity is currently valued around $9B. For comparison, Singapore Airlines is currently valued at $16B with net debt of $3-4B. In a normal year, its revenue split is approximately as follows: Domestic passengers (55%); International (30%); Frequent Flyer loyalty program (8%); air freight (7%). During the pandemic, international went to 0% and domestic fell by half. Ticket prices tend to be relatively stable over time and while demand varies with economic conditions, variations are modest. Competition within Australia is limited. Virgin Australia offers about half as many routes as Qantas/Jetstar, while Regional Express covers less than a third. Qantas/Jetstar have a monopoly on many regional routes. Instructions and questions Read the information provided about the company below. No need to research the company further on the internet as you won't have the time. Then answer these questions to the best of your ability: 1. Using the information provided, analyse each of the 2 dimensions of business risk of the company. Is sales risk high or low, and why? (3 marks). Is operational risk high or low, and why? (3 marks) 2. Based on your answer to (a), and from what you can determine about the current capital structure of the company, provide arguments why the company: • could potentially add debt; or why it should NOT add debt; or • why it should even think about reducing debt (assuming it has any). What would you advise overall? Please state your reasoning clearly. (2 marks) Please ensure explanations are professional with well reasoned arguments (2 marks). Note your answers have to specifically apply to the company in question and make reference to its situation and characteristics. If your answer equally applies to other firms, your answer is too generic. We do not expect you to have detailed knowledge of the company, but we expect you to make reasonable inferences from the text provided. You may make additional assumptions to bolster your arguments if you clearly state them. Suggested length: approximately half a page single spaced; point form allowed as long as you connect the points to the question. The company Before the pandemic, Qantas Airlines and its subsidiaries QantasLink and Jetstar operated nearly 300 airplanes and employed 30,000 employees. Its airplane leases amounted to $2B in total. These figures are typical for major international airlines. Revenue peaked in 2019 at $17B and fell to $6B in 2021. Net income was $1.5B in a particularly good year of 2016, almost $1B from 2017 to 2019, and negative $2.5B in 2020 and 2021 due to the pandemic. Qantas carries around $5B of net debt and its equity is currently valued around $9B. For comparison, Singapore Airlines is currently valued at $16B with net debt of $3-4B. In a normal year, its revenue split is approximately as follows: Domestic passengers (55%); International (30%); Frequent Flyer loyalty program (8%); air freight (7%). During the pandemic, international went to 0% and domestic fell by half. Ticket prices tend to be relatively stable over time and while demand varies with economic conditions, variations are modest. Competition within Australia is limited. Virgin Australia offers about half as many routes as Qantas/Jetstar, while Regional Express covers less than a third. Qantas/Jetstar have a monopoly on many regional routes.
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Answer rating: 100% (QA)
1Sales risk is high because international sales have gone to 0 and dom... View the full answer
Related Book For
Accounting What the Numbers Mean
ISBN: 978-0078025297
10th edition
Authors: David H. Marshall, Wayne W. McManus, Daniel F. Viele
Posted Date:
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