Kenya airways, Air France and KLM are member airlines of Sky Team, an alliance that is
dedicated to providing passengers with a seamless travel experience at every step of
their journey. The three airlines are competing to be the best provider of air transport
experience for customers in East and Central Africa. Market data base maintained by Sky
Team reveals the following customers’ purchasing behavior regarding the three airlines.
Current Preference Previous Prevalence Number of Customers
Kenya Airways Air France 240
KLM KLM 300
Air France Kenya Airways 150
KLM Air France 125
Kenya Airways Kenya Airways 600
Air France KLM 60
KLM Kenya Airways 75
Kenya Airways KLM 390
Air France Air France 450
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i) Make use of the information provided to advise management of Sky Team on the
behavior of market share of member airlines after the first three purchases.
(4 marks)
ii) Analyze the implications of the long-run customers purchasing behavior to
operations of the three airlines? (4 marks)
QUESTION THREE
Apex Mining Company is considering reopening a copper mine in Mauritania. The
following data set was obtained for the two options that can be employed by Apex Mining
Company in the extraction of copper:
Year Cash Flow for Deep
Mining (£ Millions)
Cash Flow for Open-Pit Mining
(£ Millions)
0 -60 -120
1 +20 +40
2 +40 +70
3 +50 +90
4 +30 +50
5 -15 -30
Both options have substantial cash flows at the end of the fifth year, since machinery has
to be decommissioned and land must be returned to ’green field’ status. The newly
appointed financial director of Apex Mining Company has decided to replace internal rate
of return with modified internal rate of return for investment appraisals within the
company. Further, the company’s cost of capital is 10%.
i) Calculate modified internal rate of return for open cast and deep mine methods.
(4 marks)
ii) Account for the implications of using modified internal rate of return as a mining
option. (4 marks