Linda Lechner has just been severely chastised for her inventory policy. (See Problem 6-39.) Sue Surrowski, her boss, believes that the service level should be either 95% or 98%. Compute the safety stock levels for a 95% and a 98% service level. Linda knows that the carrying cost of BX-5 is 50 cents per unit per year. Compute the carrying cost that is associated with a 90%, a 95%, and a 98% service level. Problem 6-39: Linda Lechner is in charge of maintaining hospital supplies at General Hospital. During the past year, the mean lead time demand for bandage BX-5 was 60. Furthermore, the standard deviation for BX-5 was 7. Linda would like to maintain a 90% service level. What safety stock level do you recommend for BX-5?
> Refer to the Bhavika Investments (Problem 7-37) situation once again. It has been decided that, rather than minimizing risk, the objective should be to maximize return while placing a restriction on the amount of risk. The average risk should be no mo
> Bhavika Investments, a group of financial advisors and retirement planners, has been requested to provide advice on how to invest $200,000 for one of its clients. The client has stipulated that the money must be put into either a stock fund or a money ma
> The three princes of Serendip Went on a little trip. They could not carry too much weight; More than 300 pounds made them hesitate. They planned to the ounce. When they returned to Ceylon They discovered that their supplies were just about gone When, wha
> Graphically solve the following problem: Maximize profit = 8X1 + 5X2 subject to X1 + X2 ≤ 10 X1 ≤ 6 X1, X2 Ú 0 (a) What is the optimal solution? (b) Change the right-hand side of constraint 1 t
> The computer output on the next page is for a product mix problem in which there are two products and three resource constraints. Use the output to help you answer the following questions. Assume that you wish to maximize profit in each case. (a) How ma
> Consider the LP formulation given in Problem 7-31. If the second constraint is changed from 2X + 3Y ≤ 240 to 2X + 4Y ≤ 240, what effect will this have on the optimal solution? Problem 7-31: Consider the following LP problem: Maximize profit = 5X + 6 Y
> Consider the following LP problem: Maximize profit = 5X + 6 Y subject to 2X + Y ≤ 120 2X + 3Y ≤ 240 X, Y ≥ 0 (a) What is the optimal solution to this problem? Solve it graphically. (b) If a technical breakthrough occurred that raised the
> Graph the following LP problem and indicate the optimal solution point: Maximize profit = $3X + $2Y subject to 2X + Y ≤ 150 2X + 3Y ≤ 300 (a) Does the optimal solution change if the profit per unit of X changes to $4.50? (b) What happens if the
> Give an example of a good decision that you made that resulted in a bad outcome. Also give an example of a bad decision that you made that had a good outcome. Why was each decision good or bad?
> Consider the following four LP formulations. Using a graphical approach, determine (a) which formulation has more than one optimal solution. (b) which formulation is unbounded. (c) which formulation has no feasible solution. (d) which formulation is cor
> The seasonal yield of olives in a Piraeus, Greece, vineyard is greatly influenced by a process of branch pruning. If olive trees are pruned every two weeks, output is increased. The pruning process, however, requires considerably more labor than permitti
> Woofer Pet Foods produces a low-calorie dog food for overweight dogs. This product is made from beef products and grain. Each pound of beef costs $0.90, and each pound of grain costs $0.60. A pound of the dog food must contain at least 9 units of Vitamin
> The stock brokerage firm of Blank, Leibowitz, and Weinberger has analyzed and recommended two stocks to an investors’ club of college professors. The professors were interested in factors such as short-term growth, intermediate growth,
> Consider this LP formulation: Minimize cost = $X + 2Y subject to X + 3Y ≥ 90 8 X + 2Y ≥ 160 3 X + 2Y ≥ 120 Y ≤ 70 X, Y ≥ 0 Graphically illustrate the feasible region, and apply the isocost line procedure to indicate which corner point produces th
> Referring to the Texas Lotto situation in Problem 7-20, suppose the investor has changed his attitude about the investment and wishes to give greater emphasis to the risk of the investment. Now the investor wishes to minimize the risk of the investment a
> A winner of the Texas Lotto has decided to invest $50,000 per year in the stock market. Under consideration are stocks for a petrochemical firm and a public utility. Although a long-range goal is to get the highest possible return, some consideration is
> MSA Computer Corporation manufactures two models of smartphones, the Alpha 4 and the Beta 5. The firm employs five technicians, working 160 hours each per month, on its assembly line. Management insists that full employment (i.e., all 160 hours of time)
> The dean of the Western College of Business must plan the school’s course offerings for the fall semester. Student demands make it necessary to offer at least 30 undergraduate and 20 graduate courses in the term. Faculty contracts also dictate that at le
> The Outdoor Furniture Corporation manufactures two products, benches and picnic tables, for use in yards and parks. The firm has two main resources: its carpenters (labor force) and a supply of redwood for use in the furniture. During the next production
> What is a risk seeker? What is a risk avoider? How do the utility curves for these types of decision makers differ?
> A candidate for mayor in a small town has allocated $40,000 for last-minute advertising in the days preceding the election. Two types of ads will be used: radio and television. Each radio ad costs $200 and reaches an estimated 3,000 people. Each televisi
> Electro comp’s management realizes that it forgot to include two critical constraints (see Problem 7-14). In particular, management decides that there should be a minimum number of air conditioners produced in order to fulfill a contract. Also, due to an
> The Electro comp Corporation manufactures two electrical products: air conditioners and large fans. The assembly process for each is similar in that both require a certain amount of wiring and drilling. Each air conditioner takes 3 hours of wiring and 2
> Refer to Problem 6-66. Develop a net material requirements plan assuming that there are currently 150 units of part A, 40 units of part B, 50 units of subassembly C, and 100 units of part F in inventory. Problem 6-66: The lead time for each of the parts
> The lead time for each of the parts in the SL72 (Problem 6-64) is one week, except for part B, which has a lead time of two weeks. Develop a net material requirements plan for an order of 800 SL72s. Assume that currently there are no parts in inventory.
> Blair H. Dodds III runs a medium- to large-sized home eBay business dealing in vintage photographs. The annual demand for his photos is approximately 50,000. The annual overhead cost (excluding the purchase price) to buy the photographs is $4,000 per yea
> The demand for product S is 100 units. Each unit of S requires 1 unit of T and 0.5 ounce of U. Each unit of T requires 1 unit of V, 2 units of W, and 1 unit of X. Finally, each unit of U requires 0.5 ounce of Y and 3 units of Z. All items are manufacture
> Using the data from Figures 6.12–6.14, develop a net material requirements plan for 50 units of item A assuming that it takes only 1 unit of item B for each unit of item A. Figures 6.12: Figures 6.14: / / Material Structure Tre
> Given the information in Problem 6-60, develop a gross material requirements plan for 50 units of item A. Problem 6-60: This chapter presents a material structure tree for item A in Figure 6.12. Assume that it now takes 1 unit of item B to make every un
> This chapter presents a material structure tree for item A in Figure 6.12. Assume that it now takes 1 unit of item B to make every unit of item A. What impact does this have on the material structure tree and the number of items D and E that are needed?
> What is the difference between a discrete probability distribution and a continuous probability distribution? Give your own example of each.
> Consider the Emarpy Appliance situation in Problem 6-58. If Richard Feehan wants to minimize the total annual inventory cost, how many refrigerators should be produced in each production run? How much would this save the company in inventory costs compar
> Emarpy Appliance produces all kinds of major appliances. Richard Feehan, the president of Emarpy, is concerned about the production policy for the company’s best-selling refrigerator. The demand for this has been relatively constant at about 8,000 units
> Paula Shoemaker produces a weekly stock market report for an exclusive readership. She normally sells 3,000 reports per week, and 70% of the time her sales range from 2,900 to 3,100. The report costs Paula $15 to produce, but Paula is able to sell report
> Linda Stanyon has been the production manager for Plano Produce for over eight years. Plano Produce is a small company located near Plano, Illinois. One produce item, tomatoes, is sold in cases, with daily sales averaging 400 cases. Daily sales are assum
> The marginal loss on Washington Reds, a brand of apples from the state of Washington, is $35 per case. The marginal profit is $15 per case. During the past year, the mean sales of Washington Reds in cases was 45,000 cases, and the standard deviation was
> In addition to selling Christmas trees during the Christmas holidays, Harry’s Hardware sells all the ordinary hardware items (see Problem 6-53). One of the most popular items is Great Glue HH, a glue that is made just for Harry’s Hardware. The selling pr
> Harry’s Hardware does a brisk business during the year. During Christmas, Harry’s Hardware sells Christmas trees for a substantial profit. Unfortunately, any trees not sold at the end of the season are totally worthless. Thus, the number of trees to stoc
> John Lindsay sells CDs that contain 25 software packages that perform a variety of financial functions, including net present value, internal rate of return, and other financial programs typically used by business students majoring in finance. Depending
> Sunbright Citrus Products produces orange juice, grapefruit juice, and other citrus-related items. Sunbright obtains fruit concentrate from a cooperative in Orlando consisting of approximately 50 citrus growers. The cooperative will sell a minimum of 100
> Xemex has collected the following inventory data for the six items that it stocks: Lynn Robinson, Xemex’s inventory manager, does not feel that all of the items can be controlled. What order quantities do you recommend for which inven
> Describe what it means for two events to be independent.
> H & K Electronic Warehouse sells a 12-pack of AAA batteries, and this is a very popular item. Demand for this is normally distributed, with an average of 50 packs per day and a standard deviation of 16. The average delivery time is five days, with a stan
> For SKU A3510 at the Hardware Warehouse, the order quantity has been set at 150 units each time an order is placed. The daily demand is normally distributed, with a mean of 12 units and a standard deviation of 4. It always takes exactly five days for an
> The Hardware Warehouse is evaluating the safety stock policy for all its items, as identified by the SKU code. For SKU M4389, the company always orders 80 units each time an order is placed. The daily demand is constant, at 5 units per day; the lead time
> Quality Suppliers, Inc., has decided to extend its shipping option. (Refer to Problem 6-43 for details.) Now, Quality Suppliers is offering to ship the amount ordered in five equal shipments, one each week. It will take five weeks for this entire order t
> Dillard Travey receives 5,000 tripods annually from Quality Suppliers to meet his annual demand. Dillard runs a large photographic outlet, and the tripods are used primarily with 35-mm cameras. The ordering cost is $15 per order, and the carrying cost is
> Thaarugo, Inc., produces a GPS device that is becoming popular in parts of Scandinavia. When Thaarugo produces one of these, a printed circuit board (PCB) is used, and it is populated with several electronic components. Thaarugo determines that it needs
> Ralph Janaro simply does not have time to analyze all of the items in his company’s inventory. As a young manager, he has more important things to do. The following is a table of six items in inventory along with the unit cost and the d
> North Manufacturing has a demand for 1,000 pumps each year. The cost of a pump is $50. It costs North Manufacturing $40 to place an order, and the carrying cost is 25% of the unit cost. If pumps are ordered in quantities of 200, North Manufacturing can g
> Lisa Surowsky was asked to help in determining the best ordering policy for a new product. Currently, the demand for the new product has been projected to be about 1,000 units annually. To get a handle on the carrying and ordering costs, Lisa prepared a
> Why is the probability of the intersection of two events subtracted in the sum of the probability of two events?
> Northern Distributors is a wholesale organization that supplies retail stores with lawn care and household products. One building is used to store Never fail lawn mowers. The building is 25 feet wide by 40 feet sdeep by 8 feet high. Anna Oldham, manager
> Douglas Boats is a supplier of boating equipment for the states of Oregon and Washington. It sells 5,000 White Marine WM-4 diesel engines every year. These engines are shipped to Douglas in a shipping container of 100 cubic feet, and Douglas Boats keeps
> After analyzing the costs of various options for obtaining brackets, Ross White (see Problems 6-27 through 6-29) recognizes that although he knows that the lead time is 2 days and the demand per day averages 10 units, the demand during the lead time ofte
> Upon hearing that Ross White (see Problems 6-27 and 6-28) is considering producing the brackets inhouse, the vendor has notified Ross that the purchase price would drop from $15 per bracket to $14.50 per bracket if Ross would purchase the brackets in lot
> Ross White (see Problem 6-27) wants to reconsider his decision of buying the brackets and is considering making the brackets in-house. He has determined that setup cost would be $25 in machinist time and lost production time and that 50 brackets could be
> Ross White’s machine shop uses 2,500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost
> In Problem 6-20, you helped Lila Battle determine the optimal order quantity for number 6 screws. She had estimated that the ordering cost was $10 per order. At this time, though, she believes that this estimate was too low. Although she does not know th
> Lila’s brother believes that she places too many orders for screws per year. He believes that an order should be placed only twice per year. If Lila follows her brother’s policy, how much more would this cost every year over the ordering policy that she
> Lila Battle has determined that the annual demand for number 6 screws is 100,000 screws. Lila, who works in her brother’s hardware store, is in charge of purchasing. She estimates that it costs $10 every time an order is placed. This cost includes her wa
> Refer to the DJIA data in Problem 5-41. Problem 5-41: The following table provides the Dow Jones Industrial Average (DJIA) opening index value on the first working day of 1994–2013. Develop a trend line and use it to predict the openi
> Should people who will be using the results of a new quantitative model become involved in the technical aspects of the problem-solving procedure?
> Using the DJIA data in Problem 5-41 and exponential smoothing with trend adjustment, forecast the opening DJIA value for 2014. Use
> The following table provides the Dow Jones Industrial Average (DJIA) opening index value on the first working day of 1994–2013. Develop a trend line and use it to predict the opening DJIA index value for years 2014, 2015, and 2016. Find
> In the past, Judy Holmes’s tire dealership sold an average of 1,000 radials each year. In the past 2 years, 200 and 250, respectively, were sold in fall, 350 and 300 in winter, 150 and 165 in spring, and 300 and 285 in summer. With a major expansion plan
> Management of Davis’s Department Store has used time-series extrapolation to forecast retail sales for the next four quarters. The sales estimates are $100,000, $120,000, $140,000, and $160,000 for the respective quarters before adjusting for seasonality
> The unemployment rates in the United States during a 10-year period are given in the following table. Use exponential smoothing to find the best forecast for next year. Use smoothing constants of 0.2, 0.4, 0.6, and 0.8. Which one had the lowest MAD?
> Trevor Harty, an avid mountain biker, always wanted to start a business selling top-of-the-line mountain bikes and other outdoor supplies. A little over 6 years ago, he and a silent partner opened a store called Hale and Harty Trail Bikes and Supplies. G
> Using the data in Problem 5-35, develop a multiple regression model to predict sales (with both trend and seasonal components), using dummy variables to incorporate the seasonal factor into the model. Use this model to predict sales for each quarter of t
> A major source of revenue in Texas is a state sales tax on certain types of goods and services. Data are compiled, and the state comptroller uses them to project future revenues for the state budget. One particular category of goods is classified as Reta
> Resolve Problem 5-33 with
> Consulting income at Kate Walsh Associates for the period February–July has been as follows: Use exponential smoothing to forecast August’s income. Assume that the initial forecast for February is $65,000. The smooth
> Why do you think many quantitative analysts don’t like to participate in the implementation process? What could be done to change this attitude?
> Sales of vacuum cleaners over the past 13 months were as follows: (a) Using a moving average with three periods, predict the demand for vacuum cleaners for next February. (b) Using a three-period weighted moving average with weights 3, 2, and 1, predict
> How would the forecast for week 25 of the previous problem change if the initial forecast was 40 instead of 50? How would the forecast for week 25 change if the forecast for week 1 was assumed to be 60?
> Emergency calls to Winter Park, Florida’s 911 system for the past 24 weeks are as follows: (a) Compute the exponentially smoothed forecast of calls for each week. Assume an initial forecast of 50 calls in the first week, and use WE
> Passenger miles flown on Northeast Airlines, a commuter firm serving the Boston hub, are as follows for the past 12 weeks: (a) Assuming an initial forecast for week 1 of 17,000 miles, use exponential smoothing to compute miles for weeks 2 through 12. U
> Sales of industrial vacuum cleaners at R. Lowenthal Supply Co. over the past 13 months are as follows: (a) Using a moving average with three periods, determine the demand for vacuum cleaners for next February. (b) Using a weighted moving average with t
> Would you use exponential smoothing with a smoothing constant of 0.3, a 3-year moving average, or a trend line to predict the sales of Cool-Man air conditioners? Refer to Problems 5-22, 5-25, and 5-26. Problem 5-22: Sales of Cool-Man air conditioners ha
> Using the trend projection method, develop a forecasting model for the sales of Cool-Man air conditioners (see Problem 5-22). Problem 5-22: Sales of Cool-Man air conditioners have grown steadily during the past 5 years: The sales manager had predicted
> What effect did the smoothing constant have on the forecast for Cool-Man air conditioners? (See Problems 5-22 and 5-23.) Which smoothing constant gives the more accurate forecast? Problem 5-22: Sales of Cool-Man air conditioners have grown steadily duri
> Using smoothing constants of 0.6 and 0.9, develop forecasts for the sales of Cool-Man air conditioners (see Problem 5-22). Problem 5-22: Sales of Cool-Man air conditioners have grown steadily during the past 5 years: The sales manager had predicted, b
> A college student has just completed her junior year. The following table summarizes her grade-point average (GPA) for each of the past nine quarters: (a) Forecast the student’s GPA for the fall semester of her senior year by using a
> Ron Garcia felt good about his first week as a management trainee at Mexicana Wire Winding, Inc. He had not yet developed any technical knowledge about the manufacturing process, but he had toured the entire facility, located in the suburbs of Mexico Cit
> Southwestern University (SWU), a large state college in Stephenville, Texas, 30 miles southwest of the Dallas/Fort Worth metroplex, enrolls close to 20,000 students. The school is the dominant force in the small city, with more students during fall and s
> Assume a venture has a perpetuity enterprise value cash flow of $800,000. Cash flows are expected to continue to grow at 8 percent annually and the venture’s WACC is 15 percent. A. Calculate the venture’s enterprise value. B. If the venture has $2,000,0
> Given a WACC of 15 percent, a target debt-to-value of .5, a tax rate of 28 percent and a cost of debt of 10 percent, what is the implied cost of equity?
> Calculate the after-tax WACC for a firm with a 25 percent tax rate, a 10 percent cost of debt, a 30 percent cost of equity and a target debt-to-value of .30. Explain how investing to provide the WACC returns keeps the debt and equity investors happy.
> A venture capitalist firm wants to invest $1.5 million in your NYDeli dot.com venture that you started six months ago. You do not expect to make a profit until year four when your net income is expected to be $3 million. The common stock of BioSystems,
> Suppose you are considering a venture conducting a current financing round involving an issue of 100,000 new shares at $3. The existing number of shares outstanding is 200,000. What are the related pre-money and post-money valuations?
> First- and second-round required returns of 55% and 40% (instead of the original 50% and 25%). Interpret your results as they relate to the founders’ ownership and the feasibility of the financing.
> If the new offering price was $.80 for 1,500 shares. Assume other things remain the same.
> A venture investor wants to estimate the value of a venture. The venture is not expected to produce any free cash flows until the end of year 6 when the cash flow is estimated at $2,000,000 and is expected to grow at a 7 percent annual rate per year int
> Calculate the discount rate consistent with a cap rate of 12% and a growth rate of 6%. Show how your answer would change if the cap rate dropped to 10 percent while the growth rate declined to 5 percent.
> Describe how the enterprise valuation cash flow is determined. That is, identify the components included in determining the enterprise valuation cash flow.
> What is the enterprise (entity) method of valuation and how does it differ from the equity methods?
> What are the “factors” that influence the values of American-style options?
> How do (a) American-style options, (b) European-style options, and (c) Bermudan-style options differ?
> What is common stock or common equity? What is the purpose of preemptive rights?
