The case is based on an actual investment decision made by a major paper-products company in the 1990s. The numbers and the company name have been disguised at the request of the company. The dates have been revised for pedagogical reasons. The case provides a glimpse into the paper business but is primarily designed to present a straightforward problem in assessing cash flows, cost of capital, and net present value of a capital-investment decision. The case works well for all audiences who are learning the basics of discounted cash flow and investment analysis. I have used it successfully with executives as an in-class exercise following introductory classes on cash flows, discounted cash flow, and cost of capital. I encourage participants to work in groups of two or three to bring together the concepts of the earlier classes in this simple but comprehensive, capital-investment example. The case touches on the following capital-investment topics:  Estimation of relevant cash flows (both cost savings and increased revenues)  Influence of taxes vis-à-vis cost savings and revenues  Change in net working capital as a cash flow  Component costs of capital as determined by current market conditions  Weighted average cost of capital (WACC) as the discount rate for the average investment Questions for Advance Assignment to Students 1. What yearly cash flows are relevant for this investment decision? Do not forget the effect of taxes and the initial investment amount. 2. What discount rate should Worldwide Paper Company (WPC) use to analyze those cash flows? Be prepared to justify your recommended rate and the assumptions that you used to estimate it. 3. What is the net present value (NPV) and internal rate of return (IRR) for the investment?

Walt Disney Company is famed for its creativity, strong global brand, and uncanny ability to take service and experience businesses to higher levels. In the early 1990s, then-CEO Michael Eisner looked to the fast-food industry as a way to draw additional attention to the Disney presence outside of its theme parks—its retail chain was highly successful and growing rapidly. A fast-food restaurant made sense from Eisner's perspective since Disney's theme parks had already mastered rapid, high-volume food preparation, and, despite somewhat undistinguished food and high prices (or perhaps because of), all its in-park restaurants were extremely profitable. From this inspiration, Mickey's Kitchen was launched. The first two locations were opened in California and in a suburb of Chicago, adjacent to existing Disney stores. Menu items included healthy, child-oriented fare like Jumbo Dumbo burgers and even a meatless Mickey Burger. Eisner thought that locating each restaurant next to existing Disney stores was sure to increase foot traffic through both venues. Less than 2 years later Disney closed down the California and Chicago stores and shuttered further expansion plans. Eisner cited overwhelming competition from McDonalds and general oversaturation in the fast-food industry as the primary reasons for closing down the failing Mickey's Kitchen.

-Based on your own knowledge of Disney and the information provided in the scenario, does Disney appear to create value in its businesses primarily through a cost leadership or through a differentiation strategy?

-Why do you think that Mickey's Kitchen failed? Support your answer with a logical argument, using information learned in chapter 4.

Is the national crime rate really going down? Some sociologists say yes! They say that the reason for the decline in crime rates in the 1980s and 1990s is demographics. It seems that the population is aging, and older people commit fewer crimes. According to the FBI and the Justice Department, 70% of all arrests are of males aged 15 to 34 years.† Suppose you are a sociologist in Rock Springs, Wyoming, and a random sample of police files showed that of 31 arrests last month, 23 were of males aged 15 to 34 years. Use a 1% level of significance to test the claim that the population proportion of such arrests is the city different from 70%. Solve the problem using both the traditional method and the P-value method. Since the sampling distribution of p̂ is the normal distribution, you can use critical values from the standard normal distribution as shown in the table of critical values of the z distribution. (Round the test statistic and the critical value to two decimal places. Round the P-value to four decimal places.)

State your conclusion in the context of the application.

There is sufficient evidence at the 0.01 level to conclude that the true proportion of such arrests in the city differs from 70%.There is insufficient evidence at the 0.01 level to conclude that the true proportion of such arrests in the city differs from 70%.    

Compare your conclusion with the conclusion obtained by using the P-value method. Are they the same?

We reject the null hypothesis using the traditional method, but fail to reject using the P-value method.We reject the null hypothesis using the P-value method, but fail to reject using the traditional method.    The conclusions obtained by using both methods are the same.

c) Consider a city which is locate on a long (10 km.) thin island. It has a population density of 100 people per km. which is the same everywhere in the city. Each person drinks exactly 1 cup of coffee per day and are willing to pay $5 per cup. The average cost of selling coffee is simple: the minimum average cost is $2 per cup if it sells 200 cups per day and the average cost rises by 10 cents for every 10 cups more or less than this amount (i.e. one each side of the minimum, the AC curve is a straight line where, for example, the average cost of selling a cup of coffee would equal $3 if it sold 100 cups per day and the average cost would be $4 if it sold 400 cups per day.

            i) How many sellers would there be in this city, in equilibrium?

            ii) Where the sellers would locate in equilibrium? For a marginal consumer in that equilibrium, how much benefit do they enjoy, in dollar terms relative to the situation of having only one store in town and the price did not change from that in a)?

According to a recent study annual per capita consumption of milk in the United States is 21.5 gallons. Being from the Midwest, you believe milk consumption is higher there and wish to test your hypothesis. A sample of 14 individuals from the Midwestern town of Webster City was selected and then each person's milk consumption below.

Gallons of Milk

27.1

23.84

25.25

21

17.52

19.61

19.83

26.18

34.97

29.9

28.59

20.57

26.94

27.24

Develop a hypothesis test that can be used to determine whether the mean annual consumption in Webster City is higher than the national mean.

H₀: ? _________

H_a: ? _________

What is a point estimate of the difference between mean annual consumption in Webster City and the national mean? ____________(2 decimals)

At ? = 0.01, test for a significant difference by completing the following.

Calculate the value of the test statistic ________________(2 decimals).

The p-value is ____________ (4 decimals)

Reject the null hypothesis? No or Yes

What is your conclusion?

There is insufficient evidence to conclude that the population mean consumption of milk in Webster City is greater than the hypothesized mean.

or

Conclude the population mean consumption of milk in Webster City is greater than the hypothesized mean.

SCENARIO OVERVIEW: Red Yoder is an 80-year-old farmer who lives alone in the farmhouse where he grew up. It is located 20 miles outside of town. Red has been a widower for 10 years. His son, Jon, manages the farm now, but Red is still involved in the decision making. Red is still involved in the decision making. Red's current medical problems include insulin dependent diabetes complicated by an open foot wound. Jon stopped by to check on Red after one of his friends from the VFW called to say that Red didn't make it for coffee. The nearest VA hospital is more than 100 miles away and the doctor told him that Red needed to be seen immediately. He is admitted for possible sepsis. Activities Required Prior to Simulation: Use textbook and other resources to answer questions:

1. What teaching is priority in the management of wound care for a diabetic client?

2. Describe the proper techniques to assess and care for a diabetic wound.

3. Identify the individual and environmental cues that can increase the risk for skin integrity issues in a diabetic client.

1. In an unregulated competitive market, supply and demand have been estimated

as follows: Demand P = 25 – 0.1Q. Supply P = 4 + 0.116Q

1. Calculate annual aggregate consumer surplus.
2. Calculate annual aggregate producer surplus.
3. Define what producer surplus means.

2. The elected officials in a west coast university town are concerned about the excessive rents being charged. The city council is contemplating the imposition of a $350 per month rent ceiling on apartments. An economist estimates the supply and demand curves as: Q_D = 5600 – 8P Q_S = 500 + 4P. The apartments are all identical.

1. Calculate the equilibrium price and quantity that would prevail without the price ceiling. Calculate the producer and consumer surplus at this equilibrium.
2. What quantity will eventually be available if the rent ceiling is imposed? Calculate any gains or losses in CS/or PS.

3. The supply and demand curves for corn are as follows: Q_D = 3,750 – 725P and Q_s = 920 + 690P.

1. Calculate the equilibrium P and Q in the market.
2. If the gov’t imposed a $2.50 price floor how much corn will the government be forced to purchase.
3. Calculate the CS loss due to the price floor.

a) In each of the following situations, indicate whether the potential bias is a selection bias, a nonparticipation
bias, or a response bias. Explain how this is an example of the particular type of bias in a
complete sentence.

In a college town, college students are hired to conduct door to door interviews to determine whether
city residents think there should be a law forbidding loud music at parties.

A magazine sends a survey to a random sample of its subscribers asking them whether they would
like the frequency of publication reduced from biweekly to monthly or would prefer that it would
remain the same.

A random sample of registered voters is contacted by phone and asked whether or not they are going
to vote in the upcoming presidential election.
Summer.

b) Suppose a national polling agency conducted 1000 polls in a year, using proper random sampling,
and reported a 98% confidence interval for each poll. About how many of those confidence intervals would
we expect to NOT cover the true population value?

c) What is the main distinguishing feature between observational studies and randomized experiments?
In other words, how can you tell whether something is a randomized experiment or an observational
study?

Terrific Thai Food Truck wants to know about its waiting line. Currently, they use a single-server, single-phase system when serving customers. Based on historical evidence, the average number of customers arriving per hour is 80 and is described by a Poisson distribution. They estimate that they can serve 130 customers per hour with service times that follow an exponential distribution. Being that TTFT customers have infinite patience and are willing to wait in rain, sleet, and snow for the chance to get the best Thai food in town, we don’t see any balking or reneging. Being that Terrific Thai is located in Louisville, Kentucky… a city with a large population… customers come from an infinite population. The owners would like you to help them solve some thorny operational problems and figure out some system performance measures.

Compute each the following for this queueing system:

1. Average utilization.

2. Average time in the system.

3. Average time in the queue.

4. Average number of people in the system.

5. Average number of people in the queue.

6. The probability of there being more than 3 people in the system.

According to a recent study annual per capita consumption of milk in the United States is 21.5 gallons. Being from the Midwest, you believe milk consumption is higher there and wish to test your hypothesis. A sample of 14 individuals from the Midwestern town of Webster City was selected and then each person's milk consumption was entered into the Microsoft Excel Online file below. Use the data to set up your spreadsheet and test your hypothesis.

1. Develop a hypothesis test that can be used to determine whether the mean annual consumption in Webster City is higher than the national mean.

   H₀: ? _________> 21.5≥ 21.5= 21.5≤ 21.5< 21.5≠ 21.5

   H_a: ? _________> 21.5≥ 21.5= 21.5≤ 21.5< 21.5≠ 21.5

2. What is a point estimate of the difference between mean annual consumption in Webster City and the national mean?

   (2 decimals)

3. At ? = 0.05, test for a significant difference by completing the following.

   Calculate the value of the test statistic (2 decimals).

   The p-value is  (4 decimals)

   Reject the null hypothesis?

   _____NoYes

   What is your conclusion?