John is looking at several options to fund his son’s 4-year university degree. The university fees of $45,000 a year will have be paid starting 11 years from today. He is analysing an insurance plan that pays out $45,000 a year for 4 years with the first payout 11 years from today. The insurance plan has several payment options:

Option 1 Pay $60,000 today.

Option 2 Beginning 1 year from today, pay $12,000 a year for the next 8 years.

Option 3 Beginning 1 year from today, make payments each year for the next 8 years. The first payment is $11,000 and the amount increases by 5% each year. Answer the following questions regarding the options above:

(a) Calculate the present value of each option. Use a 10% discount rate.

(b) Analyse which option John should choose.

(c) If the discount rate is not given to you, what would be an appropriate discount rate to use?

1. Consider a US company that imports German goods. What effect will a sudden depreciation of the dollar relative to the euro have on the P/E ratio of the U.S. company? Discuss the effect both the possibilities—the company being able to completely pass through the dollar depreciation to its customers and the company being unable to completely pass through the dollar depreciation to its customers. (5 points)

QUESTION 1:

Researchers claim that women speak significantly more words per day than men. One estimate is that a woman uses about 20,000 words per day while a man uses about 7,000. To investigate such claims, one study used a special device to record the conversations of male and female university students over a four- day period. From these recordings, the daily word count of the 20 men in the study was determined. Here are their daily word counts:

What value we should remove from observation for applying t procedures?

A 90% confidence interval (±±10) for the mean number of words per day of men at this university is from  to  words.

Is there evidence at the 10% level that the mean number of words per day of men at this university differs from 9000?

QUESTION 2:

Cola makers test new recipes for loss of sweetness during storage. Trained tasters rate the sweetness before and after storage. Here are the sweetness losses ( sweetness before storage minus sweetness after storage) found by 10 tasters for one new cola recipe:

Take the data from these 10 carefully trained tasters as an SRS from a large population of all trained tasters.

Is there evidence at the 5% level that the cola lost sweetness? If the cola has not lost sweetness, the ratings after should be the same as before it was stored.

The test statisic is t =  (±±0.001)

Assume that Pomo Limited, a US based firm, expects to receive S$800,000 in one year. The existing spot rate of the Singapore dollar is US$0.74. The one-year forward rate of the Singapore dollar is US$0.76. Pomo created a probability distribution for the future spot rate in one year as follows:

Future Spot | Rate Probability

US$0.75 | 20%

US$0.77 | 50%

US$0.81 | 30%

Assume that one-year put options on Singapore dollars are available, with an exercise price of US$0.77 and a premium of US$0.04 per unit. One-year call options on Singapore dollars are available with an exercise price of US$0.74 and a premium of U$0.03 per unit. Assume the following money market rates:

U.S. | Singapore

Deposit rate: 9% | 6%

Borrowing rate: 10% | 7%

Given this information, determine whether a forward hedge, money market hedge, or a currency options hedge would be most appropriate. Then compare the most appropriate hedge to an unhedged strategy, and decide whether Pomo Limited should hedge its receivables position.

a. Calculate the forward contract hedge.

b. Calculate the money market hedge.

c. Calculate the option hedge.

d. Briefly discuss the optimal hedge against the no hedge position of the company.

e. Discuss whether the multi-national corporation (MNC) like Pomo Limited will risk be over-hedged its position to the extent affect the company's financial position.

Indicate whether the following statements are TRUE or FALSE and explain your answer fully, but succinctly. Without an adequate explanation, you will get no credit.

a)An efficient outcome is desirable because it allows us to make Pareto improvements.

b)Unlike a consumer, a firm does not face a budget constraint.

c)If the wage rate increases, then those who work have a stronger incentive to supply labor.

In 1-2 sentences each, answer the following questions:

4. What is the controversial way that respect for autonomy may be applied to issues of
organ allocation, and what is one problem with this application? Explain.
5. What is the core idea of the “fair innings” argument and who does it tell us to prioritize?
6. What does it mean for a treatment option to be considered “futile care”? Provide one
example.

In 2010, Ticketmaster found out the hard way that the
entertainment industry is not, in fact, as recession-proof as
it was once widely believed to be. Th e company, which sells
tickets for live music, sports, and cultural events, and which
represents a signifi cant chunk of parent company’s Live
Nation Entertainment’s business, saw a drop in ticket sales
that year of a disconcerting 15 percent. Th en there was the
mounting negative press, including artist boycotts, the vitriol
of thousands of vocal customers, and a number of major
venues refusing to do business with Ticketmaster.
Yet 2012 has been more friendly to the company—under

the leadership of former musician and Stanford MBA-
educated CEO Nathan Hubbard, who took over in 2010

when Ticketmaster merged with Live Nation, the country’s
largest concert promoter. Th ird-quarter earnings were
strong, with just under $2 billion in revenue, a 10 percent
boost from the same period last year, driven largely by Live
Nation’s ticketing and sponsorship divisions. Ticketmaster
was largely responsible as well, thanks to the sale of 36 million
tickets worth $2.1 billion, generating $82.1 million in adjusted
operating income, which translates to an increase of
51 percent for the year.
Th at’s because Hubbard knows how to listen, and read the
writing on the wall, “If we don’t disrupt ourselves, someone
else will,” he said, “I’m not worried about other ticketing
companies. Th e Googles and Apples of the world are our
competition.”
Some of the steps he took to achieve this included to
the creation of LiveAnalytics, a team charged with mining
the information (and related opportunities) surrounding
200 million customers and the 26 million monthly site visitors,
a gold mine that he thought was being ignored. Moreover
Hubbard redirected the company from being an infamously
opaque, rigid and infl exible transaction machine for ticket
sales to a more transparent, fan-centered e-commerce
company, one that listens to the wants and needs of customers
and responds accordingly. A few of the new innovations rolled
out in recent years to achieve this include an interactive venue
map that allows customers to choose their seats (instead of
Ticketmaster selecting the “best available”) and the ability to
buy tickets on iTunes.
Hubbard eliminated certain highly unpopular service
fees, like the $2.50 fee for printing one’s own tickets, which
he announced in the inaugural Ticketmaster blog he created.

Much to the delight of event goers—and the simultaneous
chagrin of promoters and venue owners, who feared that the
move would deter sales—other eff orts toward transparency

included announcing fees on Ticketmaster’s fi rst transaction-
dedicated page, instead of surprising customers with them at

the end, while consolidating others. “I had clients say, ‘What
are you doing? We’ve been doing it this way for 35 years,’”
Hubbard recalled, “I told them, ‘You sound like the record
labels.’”
Social media is an integral part of listening, and of course,
“sharing.” Ticketmaster alerts on Facebook shows friends of
purchasers who is going to what show. An app is in the works
that will even show them where their concertgoing friends
will be seated. Not that it’s all roses for Ticketmaster—yet.
Growth and change always involve, well, growing pains,
and while goodwill for the company is building, it will take
some time to shed the unfortunate reputation of being the
company that “everyone loves to hate.” Ticketmaster made
embarrassing headlines in the fi rst month of 2013 after
prematurely announcing the sale of the president’s Inaugural
Ball and selling out a day early as a result, disappointing
thousands. But as the biggest online seller of tickets for
everything from golf tournaments to operas to theater to
rock concerts, and with Hubbard’s more customer-friendly
focus, Ticketmaster should have plenty of opportunity to
repent their mistakes.

Question:

1. Identify the problems that Ticketmaster was facing, using cause and effect analysis. What were the Symptomatic Effects? What were the Underlying Causes?

2. What process(es) did Nathan Hubbard use to Generate Alternatives? What alternatives were available to Mr. Hubbard? What types of Uncertainty did he experience?

In 2010, Ticketmaster found out the hard way that the
entertainment industry is not, in fact, as recession-proof as
it was once widely believed to be. Th e company, which sells
tickets for live music, sports, and cultural events, and which
represents a signifi cant chunk of parent company’s Live
Nation Entertainment’s business, saw a drop in ticket sales
that year of a disconcerting 15 percent. Th en there was the
mounting negative press, including artist boycotts, the vitriol
of thousands of vocal customers, and a number of major
venues refusing to do business with Ticketmaster.
Yet 2012 has been more friendly to the company—under

the leadership of former musician and Stanford MBA-
educated CEO Nathan Hubbard, who took over in 2010

when Ticketmaster merged with Live Nation, the country’s
largest concert promoter. Th ird-quarter earnings were
strong, with just under $2 billion in revenue, a 10 percent
boost from the same period last year, driven largely by Live
Nation’s ticketing and sponsorship divisions. Ticketmaster
was largely responsible as well, thanks to the sale of 36 million
tickets worth $2.1 billion, generating $82.1 million in adjusted
operating income, which translates to an increase of
51 percent for the year.
Th at’s because Hubbard knows how to listen, and read the
writing on the wall, “If we don’t disrupt ourselves, someone
else will,” he said, “I’m not worried about other ticketing
companies. Th e Googles and Apples of the world are our
competition.”
Some of the steps he took to achieve this included to
the creation of LiveAnalytics, a team charged with mining
the information (and related opportunities) surrounding
200 million customers and the 26 million monthly site visitors,
a gold mine that he thought was being ignored. Moreover
Hubbard redirected the company from being an infamously
opaque, rigid and infl exible transaction machine for ticket
sales to a more transparent, fan-centered e-commerce
company, one that listens to the wants and needs of customers
and responds accordingly. A few of the new innovations rolled
out in recent years to achieve this include an interactive venue
map that allows customers to choose their seats (instead of
Ticketmaster selecting the “best available”) and the ability to
buy tickets on iTunes.
Hubbard eliminated certain highly unpopular service
fees, like the $2.50 fee for printing one’s own tickets, which
he announced in the inaugural Ticketmaster blog he created.

Much to the delight of event goers—and the simultaneous
chagrin of promoters and venue owners, who feared that the
move would deter sales—other eff orts toward transparency

included announcing fees on Ticketmaster’s fi rst transaction-
dedicated page, instead of surprising customers with them at

the end, while consolidating others. “I had clients say, ‘What
are you doing? We’ve been doing it this way for 35 years,’”
Hubbard recalled, “I told them, ‘You sound like the record
labels.’”
Social media is an integral part of listening, and of course,
“sharing.” Ticketmaster alerts on Facebook shows friends of
purchasers who is going to what show. An app is in the works
that will even show them where their concertgoing friends
will be seated. Not that it’s all roses for Ticketmaster—yet.
Growth and change always involve, well, growing pains,
and while goodwill for the company is building, it will take
some time to shed the unfortunate reputation of being the
company that “everyone loves to hate.” Ticketmaster made
embarrassing headlines in the fi rst month of 2013 after
prematurely announcing the sale of the president’s Inaugural
Ball and selling out a day early as a result, disappointing
thousands. But as the biggest online seller of tickets for
everything from golf tournaments to operas to theater to
rock concerts, and with Hubbard’s more customer-friendly
focus, Ticketmaster should have plenty of opportunity to
repent their mistakes.

Questions

How did Mr. Hubbard select his most desirable alternative? Describe which type of Decision Making he used, and explain your findings.

Were the recent decisions that Mr. Hubbard made effective, according to the concepts in Chapter 7 – Decision Making? Explain your response.

Before you started applying for university, a job recruiter offered you a full-time cashier position at a department store earning an after-tax salary of $21,000 per year. However, you turn down this offer and attend your first year of university. The additional monetary cost of university to you, including tuition, supplies, and additional housing expenses, is $32,000.

Discuss the different levels of strategy from corporate level to the business unit level.

Discuss why there is potential for disconnect from the home office to the individual organization.