Revenue from U.S. Business

                           Exchange Rate of A$                                 (in millions)

                                   A$ = $.48                                              $100

                                   A$ =      .50                                                105

                                   A$ =      .54                                                110

Premier’s sales revenues from Australia are expected to be A $600 million.

                    The forecasted Net Cash Flows for Premier Company are below.

                    The figures are in millions.

                                    A$ = $.48                   A$ = $.50                   A$ = $.54

Sales

      U.S.                                            $100                            $105                            $110       

      Australia A$600 =     288           A$600 =     300           A$600 =     324

      Total                                           $388                            $405                            $434

Cost of materials

      U.S.                                            $200                            $200                            $200

      Australia                  A$100 =         48           A$100 =         50           A$100 =         54

      Total                                           $248                            $250                            $254

Operating expenses

      U.S.: Fixed                                  $ 30                             $ 30                             $ 30

      U.S.: Variable (20%

          of total sales)                               78                                 81                                 87

      Total                                           $108                             $111                             $117

Interest expense

      U.S.                                            $ 20                             $ 20                             $ 20

      Australia                 A$0 =               0           A$0 =               0           A$0 =               0

      Total $ 20                             $ 20                             $ 20

Net Cash Flows                                 $ 12                             $ 24                             $ 43

1. Is the cash flow of Grand Tour Co. sensitive to movements in the exchange rate of the Australia dollar? Why?
2. Does Grand Tour Co. suffer from economic exposure, or translation exposure?
3. If Grand Tour Co. shifts some of its expenses from U.S. to Australia, will this reduce its exposure?

Cincinnati Paint Company sells quality brands of paints through hardware stores throughout the United States. The company maintains a large sales force who call on existing customers and look for new business. The national sales manager is investigating the relationship between the number of sales calls made and the miles driven by the sales representative. Also, do the sales representatives who drive the most miles and make the most calls necessarily earn the most in sales commissions? To investigate, the vice president of sales selected a sample of 25 sales representatives and determined:

• The amount earned in commissions last month (y)
• The number of miles driven last month (x₁)
• The number of sales calls made last month (x₂)

The information is reported below.

Develop a regression equation including an interaction term. (Negative amount should be indicated by a minus sign. Round your answers to 3 decimal places.)

Comissions= ______+_______ calls +__________ Miles +__________

Complete the following table. (Negative amounts should be indicated by a minus sign. Round your answers to 3 decimal places.)

Compute the value of the test statistic corresponding to the interaction term. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.)

Mexico tends to have much higher inflation rate than the United States and also much higher interest rate than the United States. Inflation and interest rates are much more volatile in Mexico than in industrialized countries. The value of the Mexican peso is typically more volatile than the currencies of industrialized countries from a US perspective; it has typically depreciated from one year to the next, but the degree of depreciation has varied substantially. The bid/ask spread tends to be wider for the peso than for currencies of industrialized countries.

1. Identify the most obvious economic reason for the persistent depreciation of the peso.

2. High interest rates are commonly expected to strengthen a country’s currency because they can encourage foreign investment in securities in that country, which results in the exchange of other currencies for that currency. Yet, the peso’s value has declined against the dollar over most years though Mexican interest rates are typically much higher than US interest rates. Thus, it appears that the high Mexican interest rates do not attract substantial US investment in Mexico’s securities. Why do you think US investors do not capitalize on the high interest rates in Mexico?

3. Why do think the bid/ask spread is higher for pesos than for currencies of industrialized countries? How does this affect a US firm that does substantial business in Mexico?

Red Canyon T-shirt Company operates a chain of T-shirt shops in the southwestern United States. The sales manager has provided a sales forecast for the coming year, along with the following information:

• Each T-shirt is expected to sell for $18.
• The purchasing manager buys the T-shirts for $7 each.
• The company needs to have enough T-shirts on hand at the end of each quarter to fill 28 percent of the next quarter’s sales demand.
• Selling and administrative expenses are budgeted at $86,000 per quarter plus 15 percent of total sales revenue.

Required:
1. Determine budgeted sales revenue for quarters 1, 2, and 3.
2. Determine budgeted cost of merchandise purchased for quarters 1, 2, and 3.
3. Determine budgeted cost of good sold for quarters 1, 2, and 3.
4. Determine selling and administrative expenses for quarters 1, 2, and 3.
5. Complete the budgeted income statement for quarters 1, 2, and 3.

Sweet Air Filtration Products Company, a major supplier of air filters sold throughout the United States, employs one hundred workers at its principal manufacturing plant. The plant is located in Thunder Bay, which has a population that is 50 percent white and 25 percent African American, with the balance Hispanic American, Asian American, and others. Sweet Air requires a high school diploma as a condition of employment for its cleaning crew. Three-fourths of the white population completed high school, compared with only one-fourth of those in the minority groups. Sweet Air has an all-white cleaning crew.

Has Sweet Air violated the Civil Rights Act? Explain your answer.

Consider virtually any airline flying domestically in the United States. Most carriers have a weight limit of 50 lbs. per bag that is to be checked into cargo. Additionally, we will assume from available data that the weight of people in the United States is, on average, 172.2 lbs. with a standard deviation of 29.8 lbs.

1. Assuming a group of 100 passengers travel, discuss for this data the worst possible case of weight distribution (leading to a tail-heavy plane). What would the total weight difference between the two ends of the plane be? It is relatively safe to say that almost 100% of people would be within 2 standard deviations of the mean.

We now consider how the baggage is distributed throughout the cargo hold. In an ideal setting, a bag weight of 50 lbs, the maximum weight allowed, would be an "extreme" for any given flight. In other words, we would expect most people to have bag weights well below the maximum. Since, however, we are dealing with a normal distribution, we will, at the very least, assume that very few people have bags that have weights near the described maximum. That is, a bag weight of 50 lbs would likely be three standard deviations away from the mean.

2. Suppose the bag weights are found to be normally distributed with a mean weight of 25 lbs. What would the standard deviation of bag weights be? Describe, in words, what this value means. Is it realistic, given what we know about bag weights? Would the standard deviation be more or less realistic than if the mean bag weight was 20 lbs? 34 lbs?

3. In reality, what would you expect the shape of the distribution of bag weights to look like? Would it be normal? Would it be skewed in one direction or another? Would it be bimodal (having two peaks instead of just one)? Use your intuition to propose a reasonable possibility.

Red Canyon T-shirt Company operates a chain of T-shirt shops in the southwestern United States. The sales manager has provided a sales forecast for the coming year, along with the following information:

Each T-shirt is expected to sell for $21.

The purchasing manager buys the T-shirts for $8 each.

The company needs to have enough T-shirts on hand at the end of each quarter to fill 31 percent of the next quarter’s sales demand.

Selling and administrative expenses are budgeted at $62,000 per quarter plus 18 percent of total sales revenue.

1. Determine budgeted sales revenue for each quarter.
Budgeted Sales Revenue  
Quarter1:

Quarter 2:

Quarter 3:

2. Determine budgeted cost of merchandise purchased for each quarter.
Budgeted Cost of Merchandise Purchased
Quarter1:

Quarter 2:

Quarter 3:

3. Determine budgeted cost of good sold for each quarter.
Budgeted Cost of Goods Sold
Quarter1:

Quarter 2:

Quarter 3:

4. Determine selling and administrative expenses for each quarter.

Budgeted Selling and Administrative Expenses

Quarter1:

Quarter 2:

Quarter 3:

Complete the budgeted income statement for each quarter.

Cincinnati Paint Company sells quality brands of paints through hardware stores throughout the United States. The company maintains a large sales force whose job it is to call on existing customers as well as look for new business. The national sales manager is investigating the relationship between the number of sales calls made and the miles driven by the sales representative. Also, do the sales representatives who drive the most miles and make the most calls necessarily earn the most in sales commissions? To investigate, the vice president of sales selected a sample of 25 sales representatives and determined:

The amount earned in commissions last month (Y).

The number of miles driven last month (X1)

The number of sales calls made last month (X2)

Click here for the Excel Data File

Develop a regression equation including an interaction term. (Round your answers to 3 decimal places. Negative amounts should be indicated by a minus sign.)

A.) Commissions =_______ +________ Calls +________ Miles +______ X1X2

B.) Complete the following table. (Round your answers to 3 decimal places. Negative amounts should be indicated by a minus sign.)

Predictor Coefficient    SE Coefficient    T P-value

Constant _______         __________    ___   _________

Calls

Miles

X1X2

C.) Compute the value of the test statistic corresponding to the interaction term. (Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.)

Red Canyon T-shirt Company operates a chain of T-shirt shops in the southwestern United States. The sales manager has provided a sales forecast for the coming year, along with the following information:

Each T-shirt is expected to sell for $11.

The purchasing manager buys the T-shirts for $4 each.

The company needs to have enough T-shirts on hand at the end of each quarter to fill 21 percent of the next quarter’s sales demand.

Selling and administrative expenses are budgeted at $72,000 per quarter plus 10 percent of total sales revenue.

Required:
1. Determine budgeted sales revenue for each quarter.



2. Determine budgeted cost of merchandise purchased for each quarter.



3. Determine budgeted cost of good sold for each quarter.

4. Determine selling and administrative expenses for each quarter.



5. Complete the budgeted income statement for each quarter.

Red Canyon T-shirt Company operates a chain of T-shirt shops in the southwestern United States. The sales manager has provided a sales forecast for the coming year, along with the following information:

Each T-shirt is expected to sell for $21.

The purchasing manager buys the T-shirts for $8 each.

The company needs to have enough T-shirts on hand at the end of each quarter to fill 31 percent of the next quarter’s sales demand.

Selling and administrative expenses are budgeted at $62,000 per quarter plus 18 percent of total sales revenue.

Required:
1. Determine budgeted sales revenue for each quarter

2. Determine budgeted cost of merchandise purchased for each quarter

3. Determine budgeted cost of good sold for each quarter.

4. Determine selling and administrative expenses for each quarter.

5. Complete the budgeted income statement for each quarter.