Vail Transport offers low cost bus transportation between DIA and Vail. Their invested capital is $500,000, which corresponds to the investment in their two vehicles. Each of the two buses can carry 50 passengers. Each bus does 12 daily trips from DIA to Vail, and 12 from Vail back to DIA. The price is $10 for each one-way ticket. The current load factor is 70% (in other words, 35 of the 50 seats are sold on average). The annual cost of operating and running the business is $6 million. The company operates 365 days a year.
a. What is the current ROIC?
b. What is the minimum load factor at which the company breaks even? (Recommended: use trial and error to find the load factor where ROIC = 0)?
c. The company is considering adding another bus, at an additional investment of $250,000. This also increases their annual operating costs to $8 million. Is this a good idea? Use ROIC to explain your answer. Assume all other factors are the same.
d. Vail Transport has discovered that routine maintenance on the buses reduces their availability. The actual number of trips per day for each bus is 10 from DIA to Vail and 10 from Vail back to DIA. What is the ROIC in this case?