Portfolio Strategy Assignment Essay

1765 Words Aug 10th, 2013 8 Pages
This paper presents a revised portfolio strategy for Delta Airlines, Inc. as result of a large cash infusion it recently has received in the amount of $700 million.
Delta Airlines, Inc. provides schedule air transportation for passengers and cargo throughout the United States and around the world. Delta Airlines has a global route network giving is a presence in every major domestic and international market including airports in Amsterdam, Atlanta, Cincinnati, Detroit, Memphis, Minneapolis,
New York City, Paris, Salt Lake City, and Tokyo. Delta Airlines, Inc. is incorporated under the laws of the State of Delaware with principal executive offices located in Atlanta, Georgia. The company currently has a capital base of
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In investing in debt securities such as corporate bonds, Delta Airlines, Inc. can receive

the benefit of a high return consisting of interest income and a built-in profit if the corporate

bonds are acquired at a discount. In investing in debt securities such as U.S. government

securities or municipal securities, the company can receive the benefit of tax- exempt interest

income paid on those securities. Under the financial theory of investment, money can

never be neutral in the short-run or the long-run and the use of debt sets up a stream of

obligations that may be fulfilled to maintain solvency. Under this theory, the investments in

corporate bonds, U.S. government securities or municipal securities prove out this theory as

monies may be invested and do not remain neutral but rather set up a stream of interest

payments. Krainer (1966) stated that “outside portfolio investment is subject to changes in

market value in response to changes in the cost of capital or the interest rate.”

In investing in equity securities such as common stock, preferred stock, or other capital

stock, Delta Airlines, Inc. can receive the benefit of high appreciation on the stock and cash or

stock dividends if they are paid out. Feng (2011) stated “accounting information can aid

investment efficiency by reducing adverse selection, liquidity risk, and

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