Tharaldson Corporation makes a product with the following standard costs:

The company reported the following results concerning this product in June.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

The variable overhead efficiency variance for June is:

A company is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. There are three levels of demand under consideration: high, medium, and low. The annual profit associated with each option (in $1,000) for each level of demand is given below:

                                                 Demand Level

Staffing Options         High      Medium       Low      

Own staff                     950          900                        650

Outside vendor                        850          650                        500

Combination                1000         800                        400

3. For the problem given above, the probabilities are given by P(high demand) = 0.4, P(medium demand) = 0.3, and P(low demand) = 0.3.

(a) Compute the expected value for each decision and select the best one.

(b) Compute the expected regret value for each decision and select the best one.

(c) Calculate and interpret the expected value of perfect information.

Company A is preparing a deal to acquire company B. One analyst estimated that the merger would produce 175 million dollars of annual cost savings, from operations, general and administrative expenses and marketing. These annual cost savings are expected to begin two years from now, and grow at 2% a year. In addition the analyst is assuming an after-tax integration cost of 0.3 billion, and taxes of 20%. Assume that the integration cost of 0.3 billion happens right when the merger is completed (year 0). The analyst is using a cost of capital of 8% to value the synergies. Company B’s equity is trading at 2.3 B dollars (market value of equity). Given this, Company A is planning to pay a 30% premium for company B.

a)   Compute the value of the synergy as estimated by the analyst. Please show your calculations.

The Video Game Supply Company (VGS) is deciding whether to set next year's production at 2000, 2500, or 3000 games. Demand could be low, medium, or high. Using historical data, VGS estimates the probabilities as: 0.4 for low demand, 0.3 for medium demand, and 0.3 for high demand. The following profit payoff table (in $100s) has been developed. Production Target Demand Low Medium High 2000 games 1000 1200 1400 2500 games 800 1500 1300 3000 games 600 1700 1400

[1] What is the maximax decision alternative? [1] What is the maximin decision alternative? [2] Determine the expected value of each alternative and indicate what should be the production target for next year based on expected value. [1] Determine the expected value with perfect information about the states of nature. [1] Determine the expected value of perfect information.

The Video Game Supply Company (VGS) is deciding whether to set next year's production at 2000, 2500, or 3000 games. Demand could be low, medium, or high. Using historical data, VGS estimates the probabilities as: 0.4 for low demand, 0.3 for medium demand, and 0.3 for high demand. The following profit payoff table (in $100s) has been developed. Production Target Demand Low Medium High 2000 games 1000 1200 1400 2500 games 800 1500 1300 3000 games 600 1700 1400

[1] What is the maximax decision alternative? [1] What is the maximin decision alternative? [2] Determine the expected value of each alternative and indicate what should be the production target for next year based on expected value. [1] Determine the expected value with perfect information about the states of nature. [1] Determine the expected value of perfect information.

1. Given:Ho:p≥0.4,Ha:p<0.4,n=25,RejectHo ifX≤7
   (a) Find the level of significance .
   (b) If in fact p = 0.3, what would be the probability of making a type II error?
   (c) If the true value of p were 0.3, find the probability the test would detect that this is the case.

   What is this probability called?
   (d) Suppose that X is observed to be xo = 5.

   (i) What is your decision? (ii) What type of error are you subject to? (iii)What is the P-value?

   (e) By hand draw the power curve for this hypothesis test.
   Include the table giving the values of K(p) for p = 0.05, 0.10, 0.20, ..., 0.90, 0.95 and indicate where  is on your curve.

   (f) For the hypotheses, Ho: p ≥ 0.4, Ha: p < 0.4, n = 25, set up a rejection region so that  is as close as possible to, but does not exceed 0.10. State both the 'nominal'  and the 'exact' .

Company A is preparing a deal to acquire company B. One analyst estimated that the merger would produce 175 million dollars of annual cost savings, from operations, general and administrative expenses and marketing. These annual cost savings are expected to begin two years from now, and grow at 2% a year. In addition the analyst is assuming an after-tax integration cost of 0.3 billion, and taxes of 20%. Assume that the integration cost of 0.3 billion happens right when the merger is completed (year 0). The analyst is using a cost of capital of 8% to value the synergies.

Company B’s equity is trading at 2.3 B dollars (market value of equity). Given this, Company A is planning to pay a 30% premium for company B.

a) Compute the value of the synergy as estimated by the analyst. Please show your calculations.

b) Does the estimate of synergies in a) justify the premium that company A offered to company B? (1 paragraph at most)

PROBLEM 1:

Sales records for the last six quarters for Howard Bakery which is famous for its multi-grain bread are given below: (Sales data are in thousands of pounds, but ignore the last three zeros for ease of computation.)

Quarter                             Sales ($)

1. 240
2. 260
3. 300
4. 280
5. 320
6. 360

1. Using a three-quarter simple moving average method, forecast sales for each

successive quarter.

2. Using a three-quarter weighted moving average method, forecast sales for each successive quarter. (Use weights of 0.1, 0.3 and 0.6 for each quarter where 0.1 is for the most distant quarter, 0.3 for the next most distant quarter, and 0.6 for the most recent quarter.)  
   
3. Evaluate the two forecasts using the Cumulative Forecast Error (CFE) method (also called Bias or Arithmetic Sum of Forecast Error). Which of the two forecasts above—(a) or (b) is better based on the CFE test? Note: Show your computations.

1. Amy rolls 15 8-sided dice. What is the probability that at least 2 of the rolls are 5s?

Answer: 0.5759

2. Amy shoots 10 arrows at a target. Each arrow hits the target (independently) with probability 0.3. What is the probability that at least 3 of the arrows hit the target?

Answer: 0.6172

3. Amy shoots 64000 arrows at a target. Each arrow hits the target (independently) with probability 0.3. What is the probability that more than 2 of the first 17 arrows hit the target?

Answer: 0.9226

4. Amy tosses 19 biased coins. Each coin comes up heads with probability 0.1. What is the probability that at least 3 of the coins come up heads?

Answer: 0.2946

5. Amy tosses 10 biased coins. Each coin comes up heads with probability 0.5. What is the probability that at most 1 of the coins come up heads?

Answer: 0.0107