Red Rider makes three types of electric scooters. The company’s total fixed cost is $1,296,000,000. Selling prices, variable cost, and sales percentages for each type of scooter follow:

Selling Price Variable Cost Percent of Total Unit Sales

Mod. $2,200.   $1,900.   30

Rad. $3,700.   $3,000.   50

X-treme $6,000.   $5,000.   20

a. What is Red Rider’s break-even point in units and sales dollars?

Units. Dollars

Mod

Rad

X-treme

Total

b. If the company has an after-tax income goal of $1 billion and the tax rate is 50 percent, how many units of each type of scooter must be sold for the goal to be reached at the current sales mix?

Units. Dollars

Mod

Rad

X-treme

Total

c. Assume the sales mix shifts to 50 percent Mod, 40 percent Rad, and 10 percent X-treme. How does this change affect your answer to (a)?
Note: Do not round until you determine the number of units of each product; round number of units to the next highest whole unit in your calculations.

Units. Dollars

Mod

Rad

X-treme

Total

Big Fish Company's inventory records for its retail division show the following at July 31:

Jul 1 Beginning Inventory ...... 6 Units @ $165 = $ 990

15 Purchase ........................... 5 Units @ 166 = $ 830

26 Purchase ............................10 Units @ 175 = $ 1,750

At July 31, 9 of these units are on hand.

1. Compute the cost of goods sold and ending inventory, using each of the following four inventory methods:

Begin by entering the number of units sold and number of units in ending inventory. Then calculate cost of goods sold and ending inventory using (a) specific identification, then (b) average cost, then (c) FIFO, and finally (d) LIFO. (Round the average cost per unit to the nearest cent. Round all final answers to the nearest whole dollar.)

REQUIREMENTS:

1. Compute cost of goods sold and ending inventory, using each of the following methods:

a. Specific Identification, with three $165 units and six $175 units still on hand at the end

b. Average cost

c. FIFO

d. LIFO

2. Which method produces the highest cost of goods sold? Which method produces the lowest cost of goods sold? What causes the difference in cost of goods sold?

Protein Bars has two support departments, Information Systems and Personnel. The Information Systems Department costs of $120,000 are allocated on the basis of hours used. The Personnel Department costs of $30,000 are allocated based on the number of employees. Costs of the two operating departments are $60,000 for Fruit Bars and $90,000 for Nut Bars. Data on information systems hours used and number of employees are as follows:

information hours used = info 600, personnel 600, fruit 720, nut 480. employees used =. info 10, personnel 20, fruit 40, nut 120

a) What is the cost of the Information Systems Department allocated to Fruit using the direct method? b) Using the step-down method, what is the cost of the Personnel Department allocated to Fruit if the support department having the highest cost is allocated first?
c) Write the equations needed to allocate the costs of each support department using the reciprocal method.
d) Now solve for the total cost to be allocated under the reciprocal method for the Information Systems Department.
e) Protein Bars uses the allocation system to charge for services provided by the two support departments. Assume that Protein Bars uses the reciprocal method. What is the hourly charge for Information Systems’ services?

In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits.

2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales.

a. What is the lowest acceptable transfer price from the perspective of the selling division?

b. What is the highest acceptable transfer price from the perspective of the buying division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place?

Q1)

Possible outcomes for three investment alternatives and their probabilities of occurrence are given next.      

Using the coefficient of variation, rank the three alternatives in terms of risk from lowest to highest. (Do not round intermediate calculations. Round your answers to 3 decimal places.)

Q2)
Highland Mining and Minerals Co. is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,645,000 and will produce $309,000 per year in years 5 through 15 and $515,000 per year in years 16 through 25. The U.S. gold mine will cost $2,054,000 and will produce $252,000 per year for the next 25 years. The cost of capital is 9 percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods. (Note: In looking up present value factors for this problem, you need to work with the concept of a deferred annuity for the Australian mine. The returns in years 5 through 15 actually represent 11 years; the returns in years 16 through 25 represent 10 years.)

a-1. Calculate the net present value for each project. (Do not round intermediate calculations and round your answers to 2 decimal places.)
a-2. Which investment should be made?

b-1. Assume the Australian mine justifies an extra 2 percent premium over the normal cost of capital because of its riskiness and relative uncertainty of cash flows. Calculate the new net present value given this assumption. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
b-2. Does the new assumption change the investment decision and why?

In this question, we will formulate a measure to quantify the level of association between the two categorical variables. Such a measure is often used in a statistical test called Chi-square test for assessing whether there is an association between two categorical variables. This question is also used to motivate the learning of independence and to connect the concept back to what we have learnt in the course.

Let's revisit the example we have looked at in the course. How is diet type (high cholesterol diet versus low cholesterol diet) related to the risk of coronary heart disease? Data of 23 individuals:

High cholesterol dietLow cholesterol dietHeart disease(i) 11(ii) 213No heart disease(iii) 4(iv) 610Total15823Heart diseaseNo heart diseaseTotalHigh cholesterol diet(i) 11(iii) 415Low cholesterol diet(ii) 2(iv) 68131023

From the table we find that the probability of having heart disease is 13/2313/23 and the probability of having high cholesterol diet is 15/2315/23. Similarly, we can find the probability of not having heart disease and the probability of having low cholesterol diet.

Part a
If there is no association between the two variables (i.e., the two are independent), the probability of having heart disease and high cholesterol diet is: [Round to four decimal places].


Part b
If the two variables are independent, we should expect the number of individuals with heart disease and high cholestoral diet to be the probability in Part a multiplied by 23 individuals, which is: [Round to two decimal places].


Part c
Repeating Part b, we find that the expected number of individuals for the cells (ii), (iii), (iv) respectively on the table are: 4.52, 6.52, 3.48.

The following measure (called Chi-square test statistic):

?2=∑(Observed−Expected)2Expectedχ2=∑(Observed−Expected)2Expected

quantifies the level of association between two categorical variables. The symbol ∑∑ means a sum. "Observed" here refers to the observed counts on the table, while "Expected" refers to the expected counts given independence for the two variables is true. The sum is taken across all the cells (i) to (iv) on the table.

If there is no association, the observed counts should not differ very much from the expected counts, which results in a relatively small value of ?2χ2. A large ?2χ2 value indicates disagreement between the expected and observed counts which suggests the assumption of independence does not hold and the two variables are likely to be associated.

Compute ?2χ2. [Round to two decimal places].


Of course, how large is large is another problem and this is beyond the scope of this course.

1. Given  P(A) = 0.3 and P(B) = 0.2, do the following. (For each answer, enter a number.)

(a) If A and B are mutually exclusive events, compute P(A or B).

(b) If P(A and B) = 0.3, compute P(A or B).

2. Given P(A) = 0.8 and P(B) = 0.4, do the following. (For each answer, enter a number.)

(a) If A and B are independent events, compute P(A and B).

(b) If P(A | B) = 0.1, compute P(A and B).

3.  The following question involves a standard deck of 52 playing cards. In such a deck of cards there are four suits of 13 cards each. The four suits are: hearts, diamonds, clubs, and spades. The 26 cards included in hearts and diamonds are red. The 26 cards included in clubs and spades are black. The 13 cards in each suit are: 2, 3, 4, 5, 6, 7, 8, 9, 10, Jack, Queen, King, and Ace. This means there are four Aces, four Kings, four Queens, four 10s, etc., down to four 2s in each deck.

You draw two cards from a standard deck of 52 cards without replacing the first one before drawing the second.

(a) Are the outcomes on the two cards independent? Why?

No. The probability of drawing a specific second card depends on the identity of the first card.

Yes. The probability of drawing a specific second card is the same regardless of the identity of the first drawn card.   

No. The events cannot occur together.

Yes. The events can occur together.

(b)Find P(ace on 1st card and nine on 2nd). (Enter your answer as a fraction.)

(c) Find P(nine on 1st card and ace on 2nd). (Enter your answer as a fraction.)

(d) Find the probability of drawing an ace and a nine in either order. (Enter your answer as a fraction.)

4.  

You draw two cards from a standard deck of 52 cards, but before you draw the second card, you put the first one back and reshuffle the deck.

(a)Are the outcomes on the two cards independent? Why?

Yes. The probability of drawing a specific second card is the same regardless of the identity of the first drawn card.

Yes. The events can occur together.    

No. The events cannot occur together.

No. The probability of drawing a specific second card depends on the identity of the first card.

(b) Find P(ace on 1st card and king on 2nd). (Enter your answer as a fraction.)

(c)  Find P (king on 1st card and ace on 2nd). (Enter your answer as a fraction.)

(d)Find the probability of drawing an ace and a king in either order. (Enter your answer as a fraction.)

The National Football League (NFL) records a variety of performance data for individuals and teams. To investigate the importance of passing on the percentage of games won by a team, the following data show the conference (Conf), average number of passing yards per attempt (Yds/Att), the number of interceptions thrown per attempt (Int/Att), and the percentage of games won (Win%) for a random sample of 16 NFL teams for the 2011 season (NFL web site, February 12, 2012).

Click on the datafile logo to reference the data.

Let x₁ represent Yds/Att.
Let x₂ represent Int/Att.

The average number of passing yards per attempt for the Pittsburgh Steelers during the 2011 season was 8, and the team’s number of interceptions thrown per attempt was 0.028. Use the estimated regression equation developed in part (c) to predict the percentage of games won by the Pittsburgh Steelers during the 2011 season. (Note: For the 2011 the 2011 season, the Pittsburgh Steelers' record was 7 wins and 9 loses.)

If required, round your answer to one decimal digit. Do not round intermediate calculations. 67.5%(correct)

Q. The Pittsburgh Steelers performed worse than what we predicted by ? %.

Comparing Operating Characteristics Across Industries
Following are selected income statement and balance sheet data for companies in different industries.

(a) Compute the following ratios for each company.

• Round all answers to one decimal place (percentage answer example: 0.2345 = 23.5%).
• Note: The liabilities to stockholders' equity ratio should not be converted into a percentage answer (round answers to one decimal place, for example: 0.452 = 0.5).

  Company	Gross Profit / Sales	Net Income/ Sales	Net Income/ Stockholders' Equity	Liabilities/ Stockholders' Equity
  Target Corp.	Answer	Answer	Answer	Answer
  Nike, Inc.	Answer	Answer	Answer	Answer
  Harley-Davidson	Answer	Answer	Answer	Answer
  Cisco Systems	Answer	Answer	Answer	Answer

  
  (b) Which of the following statements about business models best describes the differences in gross (and net) profit margin that we observe?

  The higher gross profit companies are typically those that have some competitive advantage that allows them to charge a market price for their products that cannot be easily competed away.

  The lower gross profit companies are those that can manufacture their products at the lowest cost.

  The higher gross profit companies are those that sell the highest unit volumes.

  The lower gross profit companies are those that charge a higher price for their products.

  
  
  (c) Which company reports the highest ratio of net income to equity? AnswerCisco SystemHarley-DavidsonNike Inc.Target Corp.

  Which of the following statements best describes the differences in the ratio of net income to equity that we observe?

  The highest return to equity companies are those that are able to keep their operating costs the lowest.

  The highest return on equity companies are those that maintain high levels of debt and, as a result, reduce their utilization of equity.

  The highest return on equity companies are those that are able to sustain some competitive advantage that leads to higher profitability and are also able to minimize their use of equity.

  The lowest return on equity companies are those that are able to charge high prices for their products and, thus, report the highest gross profit-to-sales ratio.

• (d) Which company has financed itself with the highest percentage of liabilities to equity? AnswerCisco SystemHarley-DavidsonNike Inc.Target Corp.

  Which of the following statements best describes the reason why some companies are able to take on higher levels of debt than are others?

  Companies that can sustain higher levels of debt generally operate in consumer products industries.

  Companies that can sustain higher levels of debt are typically larger companies.

  Companies that can sustain higher levels of debt are typically those with the most stable and positive cash flows.

  Companies that can sustain higher levels of debt are generally younger companies whose market values are relatively low and, as a result, cannot raise equity capital.

     

Refer to the following information to answer questions from a to d

a) What is the standard deviation of the expected return of the stock fund? Your answer: _______________%. (Keep two decimals; Do include the “-” if your answer is a negative number.)

b) What is the standard deviation of the expected return of the bond fund? Your answer: _______________%. (Keep two decimals; Do include the “-” if your answer is a negative number.)

c) Construct a portfolio with equal weights in the stock fund and the bond fund. What is standard deviation of the portfolio return?   Your answer: _______________%. (Keep two decimals; Do include the “-” if your answer is a negative number.)

d) Construct portfolios with 5% increments in the weight of the stock fund. What is the weight of the stock fund that creates the minimum-risk portfolio?   Your answer: _______________%. (Keep two decimals; Do include the “-” if your answer is a negative number.)