I need an answer to question #4 for the business situation - Greetings Inc. stores as well as the Wall Décor division have enjoyed healthy profitability during the last two years.... In a one page memo, provide a recommendation based on the NPV analysis.....

Greetings Inc.: Capital Budgeting

The Business Situation

Greetings Inc. stores, as well as the Wall Décor division, have enjoyed healthy profitability

during the last two years. Although the profit margin on prints is often

thin, the volume of print sales has been substantial enough to generate 15% of

Greetings’ store profits. In addition, the increased customer traffic resulting from

the prints has generated significant additional sales of related non-print products.

As a result, the company’s rate of return has exceeded the industry average during

this two-year period. Greetings’ store managers likened the e-business leverage created

by Wall Décor to a “high-octane” fuel to supercharge the stores’ profitability.

This high rate of return (ROI) was accomplished even though Wall Décor’s

venture into e-business proved to cost more than originally budgeted. Why was it

a profitable venture even though costs exceeded estimates? Greetings stores were

able to generate a considerable volume of business for Wall Décor. This helped

spread the high e-business operating costs, many of which were fixed, across

many unframed and framed prints. This experience taught top management that

maintaining an e-business structure and making this business model successful

are very expensive and require substantial sales as well as careful monitoring of

costs.

Wall Décor’s success gained widespread industry recognition. The business

press documented Wall Décor’s approach to using information technology to

increase profitability. The company’s CEO, Robert Burns, has become a frequent

business-luncheon speaker on the topic of how to use information technology to

offer a great product mix to the customer and increase shareholder value. From

the outside looking in, all appears to be going very well for Greetings stores and

Wall Décor.

However, the sun is not shining as brightly on the inside at Greetings. The

mall stores that compete with Greetings have begun to offer prints at very competitive

prices. Although Greetings stores enjoyed a selling price advantage for a

few years, the competition eventually responded, and now the pressure on selling

price is as intense as ever. The pressure on the stores is heightened by the fact that

the company’s recent success has led shareholders to expect the stores to generate

an above-average rate of return. Mr. Burns is very concerned about how the

stores and Wall Décor can continue on a path of continued growth.

Fortunately, more than a year ago, Mr. Burns anticipated that competitors

would eventually find a way to match the selling price of prints. As a consequence,

he formed a committee to explore ways to employ technology to further reduce

costs and to increase revenues and profitability. The committee is comprised of

store managers and staff members from the information technology, marketing,

finance, and accounting departments. Early in the group’s discussion, the focus

turned to the most expensive component of the existing business model—the

large inventory of prints that Wall Décor has in its centralized warehouse. In addition,

Wall Décor incurs substantial costs for shipping the prints from the centralized

warehouse to customers across the country. Ordering and maintaining

such a large inventory of prints consumes valuable resources.

One of the committee members suggested that the company should pursue

a model that music stores have experimented with, where CDs are burned in the

store from a master copy. This saves the music store the cost of maintaining a

large inventory and increases its ability to expand its music offerings. It virtually

guarantees that the store can always provide the CDs requested by customers.

Applying this idea to prints, the committee decided that each Greetings store

could invest in an expensive color printer connected to its online ordering system.

This printer would generate the new prints. Wall Décor would have to pay a royalty

on a per print basis. However, this approach does offer certain advantages. First,

it would eliminate all ordering and inventory maintenance costs related to the

prints. Second, shrinkage from lost and stolen prints would be reduced. Finally,

by reducing the cost of prints for Wall Décor, the cost of prints to Greetings stores

would decrease, thus allowing the stores to sell prints at a lower price than competitors.

The stores are very interested in this option because it enables them to

maintain their current customers and to sell prints to an even wider set of customers

at a potentially lower cost. A new set of customers means even greater

related sales and profits.

As the accounting/finance expert on the team, you have been asked to perform

a financial analysis of this proposal. The team has collected the information

presented in Illustration CA 4-1.

Illustration CA 4-1

Information about the proposed capital investment project

Instructions

Mr. Burns has asked you to do the following as part of your analysis of the capital

investment project.

1. Calculate the net present value using the numbers provided. Assume that annual cash

flows occur at the end of the year.

2. Mr. Burns is concerned that the original estimates may be too optimistic. He has suggested

that you do a sensitivity analysis assuming all costs are 10% higher than expected

and that all inflows are 10% less than expected.

3. Identify possible flaws in the numbers or assumptions used in the analysis, and identify

the risk(s) associated with purchasing the equipment.

4. In a one-page memo, provide a recommendation based on the above analysis.

Include in this memo: (a) a challenge to store and Wall Décor management and (b) a

suggestion on how Greetings stores could use the computer connection for related

sales.

Note: If the switch did not prompt you for a password, then you did not configure the login parameter in Step 2.

Step 4:     Secure privileged mode access.

Set the enable password to c1$c0. This password protects access to privileged mode.

Note: The 0 in c1$c0 is a zero, not a capital O. This password will not grade as correct until after you encrypt it in Step 8.

S1> enable

S1# configure terminal

S1(config)# enable password c1$c0

S1(config)# exit

%SYS-5-CONFIG_I: Configured from console by console

S1#

Step 5:     Verify that privileged mode access is secure.

a.     Enter the exit command again to log out of the switch.

b.    Press <Enter> and you will now be asked for a password:

User Access Verification

Password:

c.     The first password is the console password you configured for line con 0. Enter this password to return to user EXEC mode.

d.    Enter the command to access privileged mode.

e.     Enter the second password you configured to protect privileged EXEC mode.

f.     Verify your configurations by examining the contents of the running-configuration file:

S1# show running-config

Notice how the console and enable passwords are both in plain text. This could pose a security risk if someone is looking over your shoulder.

Step 6:     Configure an encrypted password to secure access to privileged mode.

The enable password should be replaced with the newer encrypted secret password using the enable secret command. Set the enable secret password to itsasecret.

S1# config t

S1(config)# enable secret itsasecret

S1(config)# exit

S1#

Note: The enable secret password overrides the enable password. If both are configured on the switch, you must enter the enable secret password to enter privileged EXEC mode.

Step 7:     Verify that the enable secret password is added to the configuration file.

a.     Enter the show running-config command again to verify the new enable secret password is configured.

Note: You can abbreviate show running-config as

S1# show run

b.    What is displayed for the enable secret password?

c.     Why is the enable secret password displayed differently from what we configured?

Step 8:     Encrypt the enable and console passwords.

As you noticed in Step 7, the enable secret password was encrypted, but theenable and console passwords were still in plain text. We will now encrypt these plain text passwords using the service password-encryptioncommand.

S1# config t

S1(config)# service password-encryption

S1(config)# exit

If you configure any more passwords on the switch, will they be displayed in the configuration file as plain text or in encrypted form? Explain.

Part 3:     Configure a MOTD Banner

Step 1:     Configure a message of the day (MOTD) banner.

The Cisco IOS command set includes a feature that allows you to configure messages that anyone logging onto the switch sees. These messages are called message of the day, or MOTD banners. Enclose the banner text in quotations or use a delimiter different from any character appearing in the MOTD string.

S1# config t

S1(config)# banner motd "This is a secure system.Authorized Access Only!"

S1(config)# exit

%SYS-5-CONFIG_I: Configured from console by console

S1#

1)     When will this banner be displayed?

2)     Why should every switch have a MOTD banner?

Part 4:     Save Configuration Files to NVRAM

Step 1:     Verify that the configuration is accurate using the show run command.

Step 2:     Save the configuration file.

You have completed the basic configuration of the switch. Now back up the running configuration file to NVRAM to ensure that the changes made are not lost if the system is rebooted or loses power.

S1# copy running-config startup-config

Destination filename [startup-config]?[Enter]

Building configuration...

[OK]

What is the shortest, abbreviated version of the copy running-config startup-config command?

Step 3:     Examine the startup configuration file.

Which command will display the contents of NVRAM?

Are all the changes that were entered recorded in the file?

Part 5:     Configure S2

You have completed the configuration on S1. You will now configure S2. If you cannot remember the commands, refer to Parts 1 to 4 for assistance.

Configure S2 with the following parameters:

a.     Name device: S2

b.    Protect access to the console using the letmein password.

c.     Configure an enable password of c1$c0 and an enable secret password of itsasecret.

d.    Configure a message to those logging into the switch with the following message:

Authorized access only. Unauthorized access is prohibited and violators will be prosecuted to the full extent of the law.

e.     Encrypt all plain text passwords.

f.     Ensure that the configuration is correct.

g.    Save the configuration file to avoid loss if the switch is powered down.

Suggested Scoring Rubric

The Project is:

1. Create a new Java program which implements a simple PacMan-type text game which contains the

following functionality:

A) At program startup, constructs and displays a 2-dimensional grid using standard array(s) (no

collection classes allowed) with the size dynamically specified by the user (X and Y sizes can

be different). Places the PacMan in the upper-left corner of the grid facing left All grid cells

should have the empty cell character of ‘.’ except for the start position of the PacMan which

will have the appropriate PacMan symbol (see below). Also 15% of your grid (rounded down if

necessary) should contain cookies randomly located on the grid except for the initial PacMan

position. The grid must be displayed after each command.

B) Use these symbols for the grid:

1. Cookie symbol – shows were cookies are in the grid ('O')

2. Empty symbol – shows empty unvisited grid cells ('.') (dot)

3. Visited symbol – shows grid cells where the PacMan has visited (' ') (space)

4. PacMan symbol depends on the current PacMan facing direction.

1. Left ‘>’

2. Up ‘V’

3. Right ‘<’

4. Down ‘^’

C) A menu of commands must be provided and must be displayed when appropriate. At a

minimum the menu should consists of the following commands (the command number is what

the user should enter to execute the command):

1. Menu – Display the menu of commands.

2. Turn Left – turns the PacMan left (counter-clockwise) but the PacMan stays in its current

location

1. Current: up, new: left

2. Current: right, new up

3. Current: down, new right

4. Current: left, new down

3. Turn Right – turns the PacMan right (clockwise) but the PacMan stays in its current location

1. Current: up, new: right

2. Current: right, new down

3. Current: down, new left

4. Current: left, new up

4. Move – Moves the PacMan one grid location in the facing direction if possible.

5. Exit – exits the program displaying the game statistics of the number of total moves and the

average number of moves per cookie obtained.

2. The main processing cycle is the following:

A) The grid must be displayed after each command showing the effects of the command.

B) Optionally display the list of commands

C) Display the grid

D) Accept user input. Code will be provided for reading user input.

1. If an invalid command is entered, an appropriate error message should be displayed and the

menu of commands and grid gets redisplayed. An invalid command does not count as a

command in the statistics.

2. Process the command and add one to the number of commands entered if it is a move

command.

3. If the user enters the Exit command, the program will display the number of commands and

the average number of commands per cookie.

E) If the resulting move places the PacMan over a cookie, indicate the cookie was eaten and add

one to the number of cookies eaten for the program statistics.

The solution on CHEGG does not solve the problem. The user has to input the rows and columns. PacMan needs to turn left, right, and move forward only. I am posting what I have so far below. I still need to figure out the turn, the move forward, the disappear dots/ cookies, and the statistics on exit. import java.util.Scanner; import java.util.Random; public class AssignmentMP1_dspicer83 { public static void main(String[] args) { // Creation of variables int play = 0; int columns = 0; int rows = 0; int cookies = 0; Random rnd = new Random(); Scanner scn = new Scanner(System.in); boolean quit = false; String [][] playArea; int area = 0; String menu = "Select from the following Menu\n" + "\t1. Display Menu\n" + "\t2. Turn Left\n" + "\t3. Turn Right\n" + "\t4. Move Forward\n" + "\t5. Exit"; //User input starts here while (!quit) { System.out.println("Welcome to my PacMan game \n" + "Would you like to play? \n" + "Press 1 to play and 2 to quit"); play = scn.nextInt(); if (play == 1) { // Game Play //columns is an x value System.out.println("How many columns would you like?"); columns = scn.nextInt(); //rows is an y value System.out.println("How many rows would you like?"); rows = scn.nextInt(); //Array created area = rows * columns; playArea = new String[rows][columns]; //calculate amount of cookies cookies = (int) ((columns * rows) * 0.15); //Any size and type String selectedIndex = ""; //create random variable Random rand = new Random(); //populates play area with PacMan and dots for(int i=0;i"; } else playArea[i][j]="."; } } //Any number< totalEmenent for(int i=0; i< cookies; i++) { int selectIndex = rand.nextInt(area); //generate random until its unique while(selectedIndex.indexOf(String.valueOf(selectIndex))> 0) { selectIndex = rand.nextInt(area); } //test if is original value selectedIndex = selectedIndex+selectIndex; int xCord = (int)selectIndex/playArea[0].length; int yCord = selectIndex%playArea[0].length; if(xCord == 0 && yCord == 0) { i--; } else playArea[xCord][yCord]="O"; } //Options Menu System.out.println(menu); //Main Game loop while (!quit) { //Print Grid for(int i=0;i")) { } break; case 3: //Turn Right break; case 4: //Move Forward break; case 5: //Exit System.out.println("Thanks for playing STATS"); quit = true; break; default: System.out.println("Please select options 1 - 5"); } } } else if (play ==2) { //User exit out of game System.out.println("Thank you for checking out my PacMan game. Please come back and play."); quit = true; } else { //in input is not 1 or 2, loops back to input start System.out.println("Not a valid option"); } } } }

Case: Gillette Mach3 and Fusion (Crawford and Di Benedetto, 2014)
For decades, the Gillette Company (now a division of Procter & Gamble) has followed a
simple strategy for success: Replace excellent blade technology with an even better one.
Over the years, Gillette has brought us the Blue Blade, the Platinum Plus, the Trac II, the

Atra, the Sensor, then the SensorExcel. In April 1998, Gillette launched the Mach3: a three-
bladed pivoting cartridge system. In early 2006, the five-blade system, the Fusion, hit the

market. This case examines the development of the last two generations of Gillette
products.
By the early 1990s, design problems that had initially stalled the three-blade system had
been overcome. A prototype three-bladed razor (code-named the Manx) was developed
and shown to outperform the Sensor in internal tests. A key element of the Manx’s design
was the positioning of the three blades: Each blade was a little closer to the face than the
previous one. This patented design reduced the irritation caused by the third blade. In
addition, the pivot point was moved to the bottom of the cartridge; this new pivot point
made shaving feel a little like using a paintbrush, added to the cartridge’s stability, and
ensured that the bottom edge of the cartridge always touched the face fi rst (ensuring that
hairs were lifted properly). Other design features were also built into the Manx. To the
white lubricating strip found on the Sensor, a blue indicator was added that gradually faded,
indicating when the blade needed to be changed. And engineers were working on better
blades, perfecting a way to make them thinner and harder, thanks to new metal technology
borrowed from the manufacture of semiconductors. Furthermore, consumer studies found
an interesting problem incurred by Sensor users that suggested a potential product

improvement: 18 percent of men put the cartridge on the razor upside down! A new snap-
in mechanism was developed that would only work in the right direction.

The new design was going to be costly to manufacture. There was internal resistance within
the ranks of Gillette, with some managers believing that the company should go with a
less-revolutionary, three-bladed SensorExcel rather than a costly and risky introduction of
a totally new product. Nevertheless, the new design (now called by the code name 225)
was locked in during the month of April 1995. The next three years were spent in designing
and producing the equipment needed to manufacture the new cartridges—most of the
machinery had to be specially designed for the task. Meanwhile, product use tests with
consumers were showing that the Mach3 was outperforming the SensorExcel 2 to 1 and
doing even better against competitive brands. The consumer tests were also suggesting that
users were fairly insensitive to price—the Mach3 tested well even at a 45 percent price
premium over SensorExcel.

Gillette geared up for an April 1998 launch. In total, the Mach3 development took six years
and $750 million, about four times what the Sensor cost. Further, $300 million was

allocated for marketing worldwide in the fi rst year, so the upfront costs broke the billion-
dollar barrier. The rollout began in the United States, Canada, and Israel in July 1998, then

Western Europe and part of Eastern Europe in September. The plan was to have the Mach3
available in about 100 countries by the end of 1999. To accommodate the rollout,
production ramp-up was targeted to 1.2 billion cartridges per year by the end of 1998. The
price point was set high (about 35 percent above the SensorExcel’s price of $1 per blade);
sticker shock was reduced by putting fewer blades in each pack.
Eight years later, Gillette repeated the process with the launch of the Fusion, a five-blade
system with lubricating strips on both sides and one extra trimming blade on the back. In
addition to having more blades, the Fusion also placed the blades closer together in the
cartridge for a close, comfortable shave, and also came in a battery-powered model (the
Fusion Power) that vibrates, adding to shaving comfort.
The launch of the Fusion occurred at around the time Gillette was starting to lose market
share to a key competitor, Wilkinson Sword (a division of Energizer), with its Quattro
shaving system featuring four-blade cartridges. The success of the Quattro suggested that
customers were willing to accept shaving systems with more than three blades and
encouraged Gillette to launch the Fusion soon thereafter. In fact, Gillette never launched a
four-blade system—with the Fusion, Gillette leaped over the competition and moved
directly to the five-blade system.
Fusion was the first Gillette blade launched after the P&G acquisition and was an
immediate success. Despite a price point about a dollar higher per cartridge than Mach 3,
four million razors were sold in the first two months. An important part of the marketing
support for the Fusion was an extensive, worldwide television advertising campaign
featuring globally recognized athletes such as Tiger Woods, Thierry Henry, and Roger
Federer. Promotional support for most regions of the world was switched entirely to the
Fusion, while in a few selected markets in Asia, both Mach3 and Fusion promotions were
carried out.
Nevertheless, Gillette received some criticism and scepticism at the time of the Fusion
launch. A story in Consumer Reports found no additional performance benefits beyond
what the Mach3 offered, and critics wondered why as many as five blades were needed for
a good shave. Some even recalled phony, satirical TV ads on programs such as Saturday
Night Live and MadTV for 20-blade systems and wondered if Gillette was going in that
direction. It was also troubling to Gillette executives that, while the razors were selling
well, sales of the cartridge refills were lagging. This was a real cause for concern, for two
reasons. Low sales of refills would suggest that customers viewed the Fusion as a novelty
product and were not building loyalty; also, in the razor business, refills are much more
profitable than the cheaply priced handles. Despite the initial skepticism, the Gillette
Fusion has been a top-seller and major generator of revenue for Gillette.

QUESTION ONE
“Concept statement states a difference and how that difference benefits the customer or
end user”.
With reference to the above statement, prepare the concept statements for Mach3 and
Fusion and discuss about the format, commercialised versus non-commercialised
statements, competitive information, and price in the statements.

QUESTION TWO
(a) Based on what you see in this case, what strategic role did design play at Gillette?
Discuss.
(b) What are the risks involved in the decision to go with “really new” replacement
technology, versus making incremental design improvements to the older
technology? Discuss.

QUESTION THREE
Using the list of product use testing decisions, make recommendations as to how Mach3
and Fusion could have been product use tested prior to launch.

QUESTION FOUR
(a) Discuss the differences between the Mach3 and Fusion launches.
(b) Comment on the aggressive marketing and rollout plans used by Gillette to support
their product launches. Would you recommend they take it slower? What are the
pros and cons?

1

The information in this mini case is fictitious and

the case is used for instruction purpose only. Case

questions are provided at the bottom.

Kensington Plastics

In December 2017, Michael Roberts, managing direct

or of Kensington Plastics, was considering

the purchase of a PlaTech 2 automated injecti

on molding machine. The PlaTech 2 would replace

older semiautomated machines and would offer

improvement in quality and some additional

capacity for expansion. Given the size of the pr

oposed expenditure of $2.15 million, Roberts was

seeking a careful estimate of the project's costs

and benefits and, ultimately, a recommendation of

whether to proceed with the investment.

The Company

Kensington Plastics speciali

zed in the production of high qua

lity plastic products for use

in automotive equipment. The company had acqui

red a reputation for quality products. Its products

included seat bases and door trim

panels for cars. Customers we

re increasingly

insistent about

product quality, and Kensington Plastics' response had re

duced the defect rate of

its products to 10

parts per 100,000.

This record had won the company quality

awards from major car manufacturers

including GM, Ford, and Nissan, and had resulted

in strategic alliances with these firms.

Kensington Plastics and these ca

r manufacturers exchanged technical personnel and design tasks.

In addition, the car manufacturer

s shared important market-dema

nd information with Kensington

Plastics, which increased the precision of the la

tter's production scheduling.

In certain instances,

the car manufacturers had provided cheap loans

to Kensington Plastics to support capital

expansion. Finally, the company received relative

ly long-term supply contracts from these car

manufacturers and had a preferential

position for bidding

on new contracts.

Kensington Plastics, located

in Detroit, Michigan, was founded in 1965 by Roberts's

grandfather, John Roberts, a mechanical engine

er, to produce plastic parts for the automobile

industry. Kensington Plastics

grew slowly but steadily; its

sales for calendar-year 2017 were

expected to be $70 million. The company was liste

d for trading on the New York Stock Exchange

(NYSE) in 1995, but the Roberts family owned 51%

of the common shares of stock outstanding.

2

The company's beta was estimated at 1.35. Currentl

y, the 3-month Treasury

Bill yields 2.75%. The

average market risk premium over the

last 100 years was approximately 7%.

The company's traditional hurdle rate of return on capital deployed was 9%, although

this rate had not been reviewed since 2014. In

addition, company policy

sought payback of an

entire investment within five years. At the tim

e of the case, the market

value of the company's

capital was 40% debt and 60% equity. The preva

iling borrowing rate Kensington Plastics faced on

its loans was 6.5%. The company's effective tax rate was about 40%, which reflected the

combination of federal and local

corporate income-tax rates.

Roberts, age 55, had assumed executive res

ponsibility for the comp

any 5 years earlier,

upon the death of his father. He held a doctorate in

plastic engineering. Over

the years, the Roberts

family had sought to earn a rate of re

turn on its equity investment of 13.5%.

The PlaTech 2 Injection Molding Machine

The new injection molding machine would re

place six semiautomated injection molding

machines that together had originally co

st $650,000. Cumulative depreciation of $260,000 had

already been charged against the original cost a

nd six years of depreciation charges remained over

the total useful life of 10 y

ears. Kensington Plastics' management believed that those

semiautomated machines would need to be replaced

after six years. Roberts had recently received

an offer of 250,000 for the six machines. The curre

nt six machines required 12 workers per shift

(24 in total) at $15.00 per worker per hour, plus th

e equivalent of two main

tenance workers, each

of whom was paid $15.50 an hour, plus mainte

nance supplies of $9,500 a year. Roberts assumed

that the semiautomated machines, if kept, would c

ontinue to consume electrical power at the rate

of $24,000 a year.

The PlaTech 2 injection molding machine

was produced by a company in Cleveland,

Ohio. Kensington Plastics had received a firm offe

ring price of $2 million from the Ohio firm. The

estimate for modifications to the plant, incl

uding wiring for the machine's power supply, was

$120,000. Allowing for $30,000 for transportation, installa

tion, and testing, the total cost of the

PlaTech 2 machine was expected to be $2.15 m

illion, all of which woul

d be capitalized and

depreciated for tax purposes over eight years. Robe

rts assumed that, at a

high and steady rate of

machine utilization, the Platech 2 wo

uld be worthless after the eighth

year and need to be replaced.

3

The new machine would require two skilled

operators (one per sh

ift), each receiving

$21.50 an hour (including benefits), and contract

maintenance of $100,000 a year, and would incur

power costs of $37,000 yearly. In addition, the auto

matic machine was expected to save at least

$50,000 yearly through improved labor efficiency

in other areas of the production.

Certain aspects of the PlaTech 2 purchase

decision were difficult to quantify. First,

Roberts was unsure whether the tough collective-

bargaining agreement his company had with the

employees' union would allow her to lay off the

24 operators of the semiautomated machines.

Reassigning the workers to other jobs might be easier, but the only positions needing to be filled

were unskilled jobs, which paid

$12.50 an hour. The extent of a

ny labor savings would depend on

negotiations with the union. Sec

ond, Roberts believed that the

PlaTech 2 would

result in even

higher levels of product quality and lower defect

rates than the company was now boasting. In

light of the ever-increasing comp

etition, this outcome might prove

to be enormous, but currently

unquantifiable, competitive importance. Finall

y, the PlaTech 2 had a theoretical maximum

capacity that was 30% higher than that of the

six semiautomated machines; but those machines

were operating at only 90% of capacity, and Robe

rts was unsure when adde

d capacity would be

needed. There was plenty of uncertainty about

the economic outlook in th

e U.S., and the latest

economic news suggested that the economies of

the U.S. might be headed for a slowdown.

4

Kensington Plastics case questions

1.

Please assess the economic benefits of ac

quiring the PlaTech 2 machine (assume 210

working days per year):

a.

What is the initial investment?

b.

What are the benefits over time?

c.

What is the appropria

te discount rate?

d.

Does the net present value (NPV) warrant the investment in the machine?

2.

What uncertainties or qualitative consid

eration might influence your recommendation?

Example:

a.

Inflation

b.

Discount rate

c.

Inability to lay off existing workers

d.

A reduction in the daily operating

hours due to economic slowdown

...

Please estimate the impact on NPV from a change in at least one of those elements.

3.

Should Michael Roberts proceed with the project? Explain.

1. [7 – 3] In terms of acting, Betty White is known for starring on 3 different long running television shows (The Mary Tyler Moore Show, The Golden Girls and Hot In Cleveland). Those three shows averaged 23.7 shows per season. However, it seems that shows are producing few episodes per season, and Betty decides to put that to the test. She takes a random sample of long running television programs and determined the number of episodes in their most recent season below:

13, 26, 23, 18, 24, 18, 19, 13, 13, 15, 16, 21, 20, 16, 26

You may assume that the data comes from a normal distribution.

1. Construct a 95% confidence interval for the average number of episodes per season for a television program

2. Based on your answer to (a), can we say that the average number of episodes per season is lower than the value 23.7, the average number of episodes for the shows that Betty starred in? Explain.

2. [5] Between 2006 and 2009, Betty appeared in 23 episodes of The Bold and The Beautiful. The work was quite different from her time on sitcoms. This led her to think about the following hypotheses:

H₀: Soap opera acting is the same difficulty as sitcom acting

H_a: Soap opera acting is harder than sitcom acting

Describe what a Type I error would look like in the context of this scenario.

3. [10] While playing the role of Catherine Piper on Boston Legal, Betty White “killed” the character of Bernard Ferrion (played by Leslie Jordan). Catherine ended being found not guilty, but it led Betty to wonder: are men and women treated differently when convicted of murder? As a result, Betty took two random samples of convicted murderers, given below, and determined how long the sentences were.

Men: 25, 30, 50, 25, 20, 30, 40, 25, 30, 25, 75, 25, 15

Women: 25, 15, 20, 15, 20, 25, 15, 30, 25, 40

You may assume the data comes from normal distributions. At the .05 level of significance, is there evidence to show that men get longer sentences for murder than women?

4. [10] Betty is a common diminutive of the name Elizabeth. As a result, many people think Betty White’s real first name is Elizabeth – but how large a proportion? Betty took a random sample of 265 people and found that 147 of them believe that Betty White’s real first name is Elizabeth. At the .05 level of significance, is there evidence that a majority (more than 50%) of all people think Betty White’s real first name is Elizabeth?

(Side note: Betty White’s real first name is… Betty – she says that it isn’t “short” for anything)

5. [10] In 1995, Betty White received a star on the Hollywood Walk of Fame – and her star is right near the star of her late husband, Allen Ludden. There are many couples that both have stars on the Hollywood Walk of Fame. This led Betty to wonder – is there a difference in the age between the husband and wife when they get their Hollywood star? As a result, Betty took a random sample of heterosexual couples that both have stars on the Hollywood Walk of Fame and recorded the age at which they received their star, given below.

At the .05 level of significance, is there evidence that there is a difference in the ages when husbands and wives get their Hollywood Walk of Fame star?

6. [10] For 19 years, Betty was hostess of the Tournament of Roses Parade (which is every year before the Rose Bowl). Of all the parades on television that exist, which is the favorite? A random sample of people was taken, with the results summarized below:

At the .05 level of significance, is there an association between gender and favorite parade on television?

7. [7 – 3] Betty starred on a great number of game shows – and perhaps my favorite was Match Game. While Betty was a great player, did she do better with some contestants than others? Betty took a random sample of Match Game episodes and found that she matched the male contestants 264 out of 385 times and matched the female contestants 294 out of 377 times.

1. Construct a 95% confidence interval for the difference in the proportion of the time Betty would match male contestants and the proportion of the time Betty would match female contestants.

2. Based on your answer to (a), can we conclude that Betty matched one group of contestants better than the other?

8. [12] There is a Facebook group devoted to The Golden Girls. On a regular basis, the group poses the question: Which Golden Girl was your favorite? A recent random sample of members of the Facebook group answered the question, given in the table below.

At the .05 level of significance, is there evidence to show that the distribution of favorite Golden Girls character is not uniform? (meaning, not an equal distribution)

9. [3 – 5 – 3 – 2 – 2] In 2010, Betty White (at age 88!) hosted an episode of Saturday Night Live, becoming the oldest host the show has ever had. Most people know that she was the oldest. However, what about the second oldest? Do people have an idea how old the second oldest guest host was? A random sample of people was taken; these people were asked two questions: what is your age (x) and what do you believe is the age of the second oldest SNL host?

Note: the second oldest SNL guest host was Miskel Spillman at age 80 (in 1977) who won a contest and is the only non-celebrity to host the show.

1. Draw a scatterplot for this set of data

2. Find the linear correlation coefficient. Based on that value, is there evidence of a linear relationship between the variables? Explain.

3. Find the line of best fit.

4. Predict the value of y given the value of x = 40

5. Find the residual for x = 40.

10. [5] Suppose that it can be shown that there is evidence of the following: There is a strong association between Betty White being a star on a show and Professor Simpson watching that show religiously.

Claim: By having Betty White star on a television show will guarantee Professor Simpson watches the show religiously.

What is the issue with this claim?

11. [6] While on Hot In Cleveland, Betty White was part of 2 live episodes. Not surprisingly, this increased her stress level. What about other actors? Stress scores follow a normal distribution with a mean of 3 and a standard deviation of 1.15. If a sample of 25 actors are taken, what is the probability that their average stress score is above 3.1?

After reading the case that is below, How can a foreign company entering China ensure that it tackles the most important “little” things that end up being huge barriers to success as we approach the year 2020 when China is expected to have significantly increased purchasing power among its middle class?​ Write your opinion, as a manager, on how to face cultural issues like those described in the case, when entering foreign markets.

The People's Republic of China opened up to foreign investments in the late 1970s. Since that time, numerous companies have tried to establish operations and sell their products to customers in China. Many more companies will try in the years to come—China is expected to have some 190 million people in the middle- and upper-income categories by 2020. This is an increase from only about 17 million people in these income brackets as recently as in 2010. China's purchasing power for virtually all products and services has strong potential, and foreign companies will seek these market opportunities. What have we learned culturally that can help Western-based companies in China's marketplace?

Some background on China can serve as a starting point for better understanding the culture in China and what some well-known companies such as Best Buy and eBay have done to target the Chinese marketplace. The motivation for many foreign companies to enter China—beyond those that have been there for a few decades for reasons of low-cost production—was the triple growth of the Chinese economy that was seen from 2000 to 2010. China overtook Japan to become the second-largest economy in the world behind only the United States, and its large population makes for an enormous target market. Investment from foreign companies was the largest driver of China's growth in the decade from 2000 to 2010. However, many companies also increased their exports to China. The United States, for example, saw its companies increase exports to China by 542 percent from 2000 to 2011 (from about $16.2 billion to $103.9 billion), while total exports to the rest of the world increased by only 80 percent in the same time period.

Interestingly, while foreign investments grew, domestic consumption as a share of the Chinese economy declined from 46 percent in 2000 to 33 percent in 2010. This consumption decline—coupled with slower growth globally and, ultimately, the worldwide economic downturn that started in 2008—raised questions about China's momentum. Right now, around 85 percent of mainstream Chinese consumers are living in the top 100 wealthiest cities. By the year 2020, these advanced and developing cities will have relatively few customers who are lower than the middle- and upper-income brackets by Chinese standards. The expectation is that these consumers will be able to afford a range of products and services, such as flat-screen televisions and overseas travel, making the Chinese customer much more of a target for a wide variety of consumption. This begs the question, can the unprecedented Chinese growth really continue, and would it come from increased consumption?

The resounding answer is yes according to research conducted by McKinsey & Company. McKinsey found that barring another major economic shock similar to what we saw in 2008, China's gross domestic product (GDP) will continue to grow, albeit not at the historic levels seen between 2000 and 2010 when it grew about 10.4 percent annually. The growth from 2010 to 2020 is expected to be about 7.9 percent per year, which is still far above the expected growth for the United States (2.8 percent annually), Japan (1.2 percent annually), and Germany (1.7 percent annually)—the three countries among the top four worldwide economies along with China. And, the key is that consumption will now be the driving force behind the growth instead of foreign investment. The consumption forecast opens up opportunities for foreign companies to engage with Chinese consumers who are expected to have more purchasing power and discretionary spending.But culturally translating market success from one country or even a large number of countries to the Chinese marketplace is not necessarily as straightforward as it may seem. Often, a combination of naiveté, arrogance, and cultural misunderstanding have led many well-known companies to fail in China. Lack of an understanding of issues such as local demands, buying habits, consumption values, and Chinese customers' personal beliefs led to struggles for companies that had been very successful elsewhere in the world. Let's take a brief look at Best Buy and eBay as two examples.

Best Buy, the mega-store mainly focused on consumer electronics, was founded in 1966 as an audio specialty store. Best Buy entered China in 2006 by acquiring a majority interest in China's fourth-largest appliance retailer, Jiangsu Five Star Appliance, for $180 million. But culture shock hit Best Buy, best described by Shaun Rein, the founder of China Market Research Group. He pointed to a few reasons for this culture shock and lack of success. First, the Chinese will not pay for Best Buy's overly expensive products unless they are a brand like Apple. Second, there is too much piracy in the Chinese market, and this reduces demand for electronics products at competitive market prices. Third, like many Europeans, the Chinese do not want to shop at huge mega-stores. So, these three seemingly easy-to-understand cultural issues created difficulties for Best Buy. Solving these issues, Best Buy believed that it would have to develop and implement a different business model for the Chinese market than it has used, for example, in the United States. Now, how far should a company go outside its normal business model to adhere to cultural values and beliefs of a new market? Strategically moving forward, Best Buy opted to close all of its Best Buy–branded stores in China and focus on its wholly owned local Jiangsu Five Star chain of stores. But will this new strategic business model be successful with the new makeup of customers in China expected by 2020?

eBay, the popular e-business site focused on consumer-to-consumer purchases, was founded in 1995. The company was one of the true success stories that lived through the dot-com bubble in the 1990s. It is now a multi-billion-dollar business with operations in more than 30 countries. But China's unique culture created problems for eBay in that market. Contrary to the widespread cultural issues that faced Best Buy, one company in particular (TaoBao) and one feature more specifically (built-in instant messaging) shaped a lot of the problems that eBay ran into in China. Some 200 million shoppers are using TaoBao to buy products, and the company accounts for almost 80 percent of online transaction value in China. Uniquely, TaoBao's built-in instant messaging system has been cited as a main reason for its edge over eBay in China. Basically, customers wanted to be able to identify a seller's online status and communicate with them directly and easily—a function not seamlessly incorporated into eBay's China system. Clearly, built-in instant text messaging is a solvable obstacle in doing business in China. It sounds easy now when we know about it, but may not always be the case when we take into account all the little things that are important in a market.

MARKETING ANALYTICS: Case Study                       Name: ____________________

                                                                                                       Date:     ________________________

Background

You have been promoted to Vice President of Marketing for ACME CPG, Inc. ACME sells consumer packaged goods (CPG) to its customers in the United States. ACME competes against other CPG companies, such as Procter & Gamble with brands such as Tide laundry detergent and Ivory soap, as well as Unilever, with brands such as Sun laundry detergent and Dove soap.

Customers mostly know ACME CPG for its line of environmentally friendly all-purpose cleaners. ACME prides itself on its non-toxic formula, safe for homeowners along with their children and pets. ACME has diversified beyond all-purpose cleaners to include stainless steel cleaner, pet stain remover, deck & fence cleaner, concrete and driveway cleaner, car wash, barbecue grill cleaner, carpet cleaner, floor cleaner, glass cleaner, and all-purpose wipes.

ACME CPG is considering expanding its product line to include laundry detergent. The company faces stiff competition but believes it can compete because of the stellar reputation of its environmentally-friendly brand.

ACME CPG management has asked you to estimate the size of the market to assess whether it is financially worthwhile to enter the market. To conduct a thorough approach to the problem, you plan to estimate the size using several different techniques, and then aggregate the results. Specifically, you will estimate the size using multiple approaches:

• Available industry analyst reports
• Government sources, such as Census data
• Top-Down estimation methods
• Bottom-Up estimation methods

Industry Analyst Reports

You learn that industry analyst firm SymphonyIRI Group (iriworldwide.com) has estimated the total size of the US laundry detergent market:

Fact 1: Laundry detergent accounted for $7.2 billion of sales for the 52 weeks ended Nov. 4, 2012.

Source: Branna, Tom. “Where’s the Bounce?” Household and Personal Products Industry (HAPPI) website. January 21, 2013.

http://www.happi.com/issues/2013-01/view_features/wheres-the-bounce/

Government Sources

You wonder how this industry analyst estimate compares with the Industry Statistics Sampler available through the U.S. Census Bureau. You conduct an Internet search and find the North American Industry Classification System (NAICS) code information you need:

Fact 2: United States Census Bureau data for 2007 Census:

NAICS 325611: Soap and other detergent manufacturing: $26.371 billion

NAICS 32561146 Household dry and liquid laundry detergents, heavy-duty: $6.734 billion

Source: U.S. Census Bureau, Industry Statistics Sampler, NAICS 325611 Soap and other detergent manufacturing.

Top-Down Estimation Methods

Having determined the industry analyst and government data, you proceed to the next step, which is to estimate the size using top-down techniques. To perform the top-down technique, we will need to know the total “universe” of detergent-using entities in the United States (i.e., households who do laundry), how many loads of laundry they wash per year, and the average cost of detergent per load. Luckily, we are able to find all of the facts we need:

Fact 3: Number of U.S. Households (designated as “HH” in U.S. Census Bureau data) in 2010 Census:

U.S. Households (HH) in 2010: 114.8 million

Source: U.S. Census Bureau, “Current Population Reports: Projections of the Number of Households and Families in the United States: 1995 to 2010.” April 1996

http://www.census.gov/prod/1/pop/p25-1129.pdf

Fact 4: Average number of loads of laundry washed per year per household: 400 loads/year.

The article mentions the impact of children on the loads of laundry washed, so we assume the figure refers to loads/year washed by households with children.

Source: California Energy Commission, “Consumer Energy Center: Appliances: Clothes Washers.”

Fact 5: Average cost of detergent per load of laundry: $0.23/ load

Source: Consumer Reports, “Laundry Detergent Test: High Price Doesn’t Guarantee High Performance.” June 1, 2010.

At this point, you have the data you need to estimate the market size using top-down techniques.

1. Estimate the size of the U.S. laundry detergent market using the Top-Down approach using the data given.

Bottom-Up Estimation Methods

Next, you estimate the market size using bottom-up techniques. You research the space and learn that different types of households have different laundry-washing behaviors. Specifically, you learn that married couples (especially those with children) wash many more loads of laundry than bachelors. You examine U.S. Census data and learn that the government breaks down households into three segments: Married Couples, Male Householder, and Female Householder. You obtain the data for each segment:

Fact 6: Breakdown of U.S. Households, according to 2010 U.S. Census Bureau data:

Married Couples: 58.4 million

Female Householder: 35.3 million

Male Householder: 23.8 million

Source: U.S. Census Bureau, “America’s Families and Living Arrangements: 2010.”

http://www.census.gov/population/www/socdemo/hh-fam/cps2010.html

Armed with this information, you set out to estimate the market size using bottom-up techniques. In general, the bottom-up approach will sum up usage from each segment like this:

Total Usage     =    Usage from Married Couples Households (i.e. Segment 1)

                           + Usage from Female Householder (i.e. Segment 2)

                           + Usage from Male Householder (i.e. Segment 3)

We can express this as follows:

Total Usage      = (Married HH * #Loads/yr) + (Female HH * #Loads/yr) + (Male HH * Loads/yr) * $cost/load

We assume that behavior for each segment will be different. We make the assumption that married households (especially those with children) will wash more laundry than female households, who in turn will wash more laundry than male households. We will need to quantify (or estimate) the difference in behavior as we calculate the bottom-up value.

2. Estimate the size of the U.S. laundry detergent market using the Bottom-Up approach.

Aggregating the Data

You decide to combine the values you estimated. In this process, if you feel particularly strongly about the accuracy of one of the methods, you can weight it higher or lower than the others. Alternatively, you can perform a simple arithmetic average.

3. Submit a final estimate by triangulating the data from the different approaches.

PEST Market Trend Analysis

You complete your analysis by conducting a PEST market trend analysis to predict the future state of the U.S. laundry detergent market, based on current market forces.

4. Conduct a PEST market trend analysis for the laundry detergent market in the United States, please refer to data from the top-down and bottom-up.

CASE 2

Mark Hobson is an internal auditor employed by Com­ stock Industries. He is nearing completion of an audit of the Avil Division conducted during the first five weeks of the year. The Avil Division is one of three manufacturing divisions in Comstock and manufactures inventories to supply about 50 percent of Comstock's sales. In addition to the manufacturing divisions, Comstock has two marketing divisions (domestic and international) and a technical service division that offers worldwide technical support. Each customer is assigned to the most suitable manufacturing division, which functions as the supplier for that customer. The manufacturing division then approves the customer's credit, ships against orders obtained by the sales representatives, and collects the customer receivables when due. This allows order-to-order monitoring of customer credit limits against customer orders received.

Two Potential Observations

Two items concern Mark. First, there was a material dollar amount of inventory of part number A2 still carried on the Avil books at year-end, despite the fact that the Fast-tac machining component in which part A2 was used is now considered the first generation and is no longer manufactured. Company policy requires an immediate write-off of all obsolete inventory items. Second, some accounts receivable still carried as collectible at year-end were more than 180 days old. All receivables are due in 30 days, which is standard for the industry. Mark believes many of these old accounts are uncollectible.

The division manager's administrative assistant, Brenda Wilson, performed the aging- of accounts receivable rather than the division accountant, as is standard practice. The division accountant refused to discuss the circumstances of Brenda's actions.

The Auditee's Comments

Mark scheduled a meeting with Brenda to discuss his concerns.

"Well, Mark," Brenda responded, "I know that policy requires that obsolete inventories be written off; but part A2 is just not being used at present. We might start to make those Fast-tac components again. Who knows? Wide ties are coming back again, aren't they? Fast-tac could, too. There are plenty of customers, especially in the third world, that are finding those second- and third-generation machines pretty expensive to maintain. I mean, there is a policy that states obsolete inventories should be written off, but there is no policy defining an obsolete part."

"And as for those receivables,” Brenda continued, "that is certainly a judgment call, too. Who knows if those accounts will be collected? We're in a slight recession now. When things pick up, we'll probably collect a few. There isn't even a policy in this division on writing off receivables. I checked. Nothing says I have to write them off. So who are you to say I have to?"

“'Brenda, be straight. You know those parts will never be used. And you know those receivables are bad."

"Look, Mark," Brenda finally bargained, "it's only two weeks from the close of the year. Let's let these items ride till after the close so that everyone gets their bonuses. Then, I promise I'll take a fresh look at both inventories and receivables. I'll write them down after year-end after the financial reports are issued. No one will know. And, after all, who's to be hurt?"

The Division Manager

Mark continued his audit, drafted his report containing observations related to the inventory and receivables, and reviewed the report with the division manager, Hal Wright. Hal was visibly disturbed.  

"Gee, Mark, this couldn't have come at a more awkward time. Our figures just passed muster by the independent outside auditors. There was a guy out here for our inventory count in November, and Brenda already sent her spreadsheet on year-end receivables to corporate head­ quarters. No one up there, in our group or on the CPA audit team, was the least bit critical. If you go raising a big stink, particularly now, the independent outside auditors will catch us writing off inventory and receivables, they'll adjust profit, and there will be hell to pay for all of us. And, Mark, this is no clear-cut issue either. I mean, I can see how you can write a report calling for clearer policy, but not one calling for specific write-downs. That's way out of your jurisdiction. But still, I promise, we'll look at all this after our statements go to bed. Right now, I feel the managers of this division have worked their hearts out and I intend to fight to protect what little bonuses they have coming. If we write down as you suggest, those bonuses will go and the stockholders will lose too. Earnings per share (EPS) will drop like a rock. They might even close this division. Now you don't want that, do you, boy?"  

"Well, Hal, I could word my observations as they are in the draft but include your response." Hal was suddenly angry. "What? And let the audit committee decide the issue? They have nothing to do with this. They accepted the CPA’s report. If you want to make the audit committee happy, you'll accept it, too, and leave this adjustment stuff alone."

The Internal Audit Director
Concerned, Mark delayed finalizing his report and discussed the draft with Gail Wu, director of internal audit. Gail is not trained as an auditor and was promoted to director of internal audit from corporate finance so that she might develop a better understanding of operating relationships. Still, Gail is very smart and Mark has always respected her opinion. The discussion was by telephone, with Mark still at the Avil Division headquarters and Gail at the corporate office.

"Mark, Hal is right. If you, in essence, blow the whistle on management bonuses this year, we can kiss goodbye all the goodwill I've been struggling to build for this department. It will all go out the window."

"I know you've been trying to put us on a better footing, Gail, but Hal is intractable. As far as he is concerned, the only observation he will accept in the report is that of deficient policy, with nothing mentioned about the inventory or receivables needing adjustment."

"Well, do what you have to," Gail ended the discussion. "But I insist that you submit a report that Hal agrees to and has signed. I don't want to stir up hornets and then have to try to explain my loose cannon to the board when everyone is howling about the bonus problem."

1. Refer to The IIA’s Code of Ethics. Identify three specific Rules of Conduct relevant to this case.
2. Using the Rules of Conduct you identify as the context, discuss the ethical issues raised in the case.
3. Discuss how the ethical dilemma Mark faces might have been avoided. In other words, discuss specific things Comstock's management and/or the internal audit function might have done to reduce the risk of such a situation arising.
4. Clearly indicate what you would do if you found yourself in Mark's position. Briefly explain why.