Portfolio Strategy Assignment

Topics: Investment, Stock market, Stock Pages: 7 (1780 words) Published: August 25, 2013
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 $14 billion with short-term investments totaling $958 million and long-term investments totaling $188 million. With the recent large cash infusion, the company wants to maximize wealth for the shareholders. This paper presents a revised portfolio strategy to achieve the maximization of wealth that the company wants to achieve. With the use of various debt securities and stock securities, the company should be able to capitalize on the additional investment of the $700 million in adding it to its existing short-term investments of $958 million and long-term investments of $188 million. Current Investment Portfolio As of December 31, 2011, Delta Airlines, Inc. has short-term investments totaling $958 million and long-term investments of $188 million. Short-term investments may be classified as any investments held for at least three months and no longer than one year. Long-term investments are classified as any investments held for a period longer than one year. With the recent large cash infusion that Delta Airlines, Inc. received in the amount of $700 million, the company should be able to invest the additional funds in stock and debt securities to maximize wealth for the shareholders. The current investment base, including short-term investments and long-term investments, is $1,146 million made up of short-term investments totaling $958 million and long-term investments totaling $188 million. With the additional investment of the $700 million cash infusion, the new investment base for the company will be $1,846 million that represents a 61% increase in investments for the company. Debt and Stock Securities With the investment of the $700 million from the recent large cash infusion in debt and equity securities, Delta Airlines will be able to reach its objective in maximizing shareholder wealth. Debt securities are instruments representing a creditor relationship with a company. Examples of debt securities include U.S. government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and securitized debt instruments. Weygandt (2010) stated that “debt securities are grouped into three categories that include held-to-maturity securities, trading securities, and available-for-sale securities. Held-to-maturity securities are debt securities that the company has the positive intent and ability to hold to maturity. Trading securities are debt securities that are bought and held primarily for sale in the near term to generate income on short-term price differences. Available-for-sale securities are debt securities that are classified as held-to-maturity or trading securities.” Weygandt (2010) stated “equity securities, or stock securities, are securities that represent ownership interest such as, common, preferred, or other capital stock. Equity securities include the rights to acquire or dispose of ownership interests at an agreed upon price such as warrants, rights, call options, or put options. The degree of ownership that one corporation (investor) acquires an interest in the common stock of another corporation (investee)...

References: Delta Airlines, Inc. (2011). Form 10-K for the fiscal year ended December 31, 2011. Retrieved from http://www.sec.gov/edgar.shtm.
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