Ferntree Experiences has two operating divisions, Winery and Restaurant. The two divisions have a marketing agreement to provide incentives to customers. The Winery division offers coupons good for meals at the restaurant and the restaurant division offers coupons good for wine tasting and purchases. Annual profits are $12 million. The two divisions meet the requirements for segment disclosures.

Before the transactions are considered, revenues and costs (in thousands of dollars) for the two divisions are as follows.

After adjusting appropriately for the effect of the marketing agreement, the revenues and costs are as follows.

The value of the coupons issued by the Restaurant Division was double the value of the coupons issued by the Winery Division.

What was the value of the coupons issued by the Winery Division? What was the value of the coupons issued by the Restaurant Division?

1. The U.S. Department of Transportation reported that during November, 83.4% of Southwest
Airlines’ flights, 75.1% of US Airways’ flights, and 70.1% of JetBlue’s flights arrived on time (USA
Today, January 4, 2007). Assume that this on-time performance is applicable for flights arriving at
concourse A of the Rochester International Airport, and that 40% of the arrivals at concourse Aare
Southwest Airlines flights, 35% are US Airways flights, and 25% are JetBlue flights.
a. An announcement has just been made that Flight 1424 will be arriving at gate in concourse A.
What is the most likely airline for this arrival?
c. What is the probability that Flight 1424 will arrive on time?
d. Suppose that an announcement is made saying that Flight 1424 will be arriving late. What is the
most likely airline for this arrival? What is the least likely airline?

2. In San Francisco, 30% of workers take public transportation daily (USA Today, December 21, 2005).
a. In a sample of 10 workers, what is the probability that exactly three workers take public
transportation daily?
b. In a sample of 10 workers, what is the probability that at least three workers take public
transportation daily?

3. Auniversity found that 20% of its students withdraw without completing the introductory statistics
course. Assume that 20 students registered for the course.
a. Compute the probability that two or fewer will withdraw.
b. Compute the probability that exactly four will withdraw.
c. Compute the probability that more than three will withdraw.
d. Compute the expected number of withdrawals.

4. Phone calls arrive at the rate of 48 per hour at the reservation desk for Regional Airways.
a. Compute the probability of receiving three calls in a 5-minute interval of time.
b. Compute the probability of receiving exactly 10 calls in 15 minutes

.
5. More than 50 million guests stay at bed and breakfasts (B&Bs) each year. The website for the Bed
and Breakfast Inns of North America, which averages seven visitors per minute, enables many
B&Bs to attract guests (Time, September 2001).
a. Compute the probability of no website visitors in a one-minute period.
b. Compute the probability of two or more website visitors in a one-minute period.

6. In a survey conducted by the Gallup Organization, respondents were asked, “What is your favorite
sport to watch?” Football and basketball ranked number one and two in terms of preference
(Gallup website, January 3, 2004). Assume that in a group of 10 individuals, seven prefer football
and three prefer basketball. A random sample of three of these individuals is selected.
a. What is the probability that exactly two prefer football?
b. What is the probability that the majority (either two or three) prefer football?

Jefferson International is trying to choose between the following two mutually exclusive design projects:

The required return is 12 percent.

i) Rank the projects using profitability index (PI) decision rule.

ii) If the company applies the NPV decision rule, which project should it take?

iii) Given your first two answers, which project should the firm accept?

B

Suppose the company is granted a 5-year lease of a land to complete the project. The company is required to restore the land to its former condition after its 5 years tenure. Annual net revenue are expected to be $250,000 for 5 years and the budgeted cost of restoration works is $500,000.

Calculate the MIRR for the project, if positive cash flows are expected to be invested at 10% return and money can be borrowed at 7%.

AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February:

The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,700 plus $34 per job, and the actual mobile lab operating expenses for February were $8,280. The company expected to work 110 jobs in February, but actually worked 114 jobs.

Required:

Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February: Fixed Component per Month Variable Component per Job Actual Total for February Revenue $ 277 $ 30,490 Technician wages $ 8,200 $ 8,050 Mobile lab operating expenses $ 4,700 $ 31 $ 8,260 Office expenses $ 2,700 $ 3 $ 2,910 Advertising expenses $ 1,550 $ 1,620 Insurance $ 2,870 $ 2,870 Miscellaneous expenses $ 970 $ 1 $ 395 The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,700 plus $31 per job, and the actual mobile lab operating expenses for February were $8,260. The company expected to work 120 jobs in February, but actually worked 128 jobs. Required: Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February: Fixed Component per Month Variable Component per Job Actual Total for February Revenue $ 276 $ 27,610 Technician wages $ 8,600 $ 8,450 Mobile lab operating expenses $ 4,900 $ 33 $ 8,370 Office expenses $ 2,400 $ 3 $ 2,580 Advertising expenses $ 1,560 $ 1,630 Insurance $ 2,870 $ 2,870 Miscellaneous expenses $ 930 $ 1 $ 345 The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,900 plus $33 per job, and the actual mobile lab operating expenses for February were $8,370. The company expected to work 110 jobs in February, but actually worked 116 jobs. Required: Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February:

AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February:

The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,700 plus $32 per job, and the actual mobile lab operating expenses for February were $9,020. The company expected to work 140 jobs in February, but actually worked 148 jobs.

Required:

Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February:

The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,900 plus $33 per job, and the actual mobile lab operating expenses for February were $9,360. The company expected to work 140 jobs in February, but actually worked 142 jobs.

Required:

Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February:

The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,900 plus $32 per job, and the actual mobile lab operating expenses for February were $9,220. The company expected to work 140 jobs in February, but actually worked 142 jobs.

Required:

Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)