Statistical Methods of Business I – Case Study

Texas is home to more than one million undocumented immigrants, and most of them are stuck in low-paying jobs. Meanwhile, the state also suffers from a lack of skilled workers. The Texas Workforce Commission estimates that 133,000 jobs are currently unfilled, many because employers cannot find qualified applicants (The Boston Globe, September 29, 2011). Texas was the first state to pass a law that allows children of undocumented immigrants to pay in-state college tuition rates if they have lived in Texas for three years and plan to become permanent residents. The law passed easily back in 2001 because most legislators believed that producing college graduates and keeping them in Texas benefits the business community. In addition, since college graduates earn more money, they also provide the state with more revenue.

Chuck Norris, who sits on the Board of Directors for the Texas Workforce Commission suggests the board should hire your consulting firm, Stat Solutions, to estimate the mean hourly wage of workers with various levels of education. You accept the job and a sample is collected of the hourly wages of 30 Texas workers with a bachelor’s degree or higher, 30 Texas workers with only a high school diploma, and 30 Texas workers who did not finish high school.

Chuck wants you to provide a full report for him to present at the next meeting of the Texas Workforce Commission Board of Directors which occurs in 10 days.

Requirements and associated point values:

Part 1 – Calculate and use descriptive statistics to compare hourly wages for each of the education levels. Be sure to include the mean, standard deviation and margin of error with 95% confidence for each of the 3 levels (9 calculations). These calculations range in value from 3-4 points each for a total of 33 points. Note: See page 293 for the margin of error formula.

Part 2 – Construct and interpret 95% confidence intervals for the mean hourly wage at each education level. There should be an upper and lower number for each of the 3 levels. The end result should be 6 numbers which are valued at 3 points each for a total of 18 points.

Excel

You are expected to use Excel functions for the majority of your calculations. 10 points are allocated to the use of Excel. I will check within the cells to find/confirm your formulas and summation. An additional 10 points are allocated to showing your work (calculations). If you use Excel you receive the combined amount (20 points). If you perform the calculations by hand and show your work on paper you will receive only 10 points. Use Excel! It is a great tool that will serve you well in your future endeavors. The case study is valued at a total of 100 points.

THE MBA DECISION

Ben Bates graduated from college six years ago with a finance undergraduate degree. Since graduation, he has been employed in the finance department at East Coast Yachts. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program.

Ben’s annual salary at East Coast Yachts is $57,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 40 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program.

page 129The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $63,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,500 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $105,000 per year, with an $18,000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary, his average income tax rate will increase to 31 percent.

The Bradley School of Business at Mount Perry College began its MBA program 16 years ago. The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated, one-year program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $3,500. Ben thinks that after graduation from Mount Perry, he will receive an offer of $88,000 per year, with a $15,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average income tax rate at this level of income will be 29 percent.

Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will cost $2,000 more per year at both schools than his current expenses, payable at the beginning of each year. The appropriate discount rate is 6.1 percent. Assume all salaries are paid at the end of each year.

1. How does Ben’s age affect his decision to get an MBA?

2. What other, perhaps nonquantifiable factors, affect Ben’s decision to get an MBA?

3. Assuming all salaries are paid at the end of each year, what is the best option for Ben—from a strictly financial standpoint?

4. In choosing between the two schools, Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?

5. Suppose that instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4 percent. How would this affect his decision to get an MBA?

1. Special notes.	Books	Tuition	Tax	Tax bracket	Pell Grants
   This student volunteers time at a local school to help with their underfunded music program. He could have earned $400 with the time he spent there.	$300	$4,000	$1,000	12%	$3,300

   What is the amount of the Maximum Benefit?

QUESTION 12

1. Special notes.	Books	Tuition	Tax	Tax bracket	Pell Grants
   This student volunteers time at a local school to help with their underfunded music program. He could have earned $400 with the time he spent there.	$300	$4,000	$1,000	12%	$3,300

   What is the amount of the Taxable Scholarship?

0.5 points   

QUESTION 13

1. Special notes.	Books	Tuition	Tax	Tax bracket	Pell Grants
   This student spent $20 to take a first date to an ice skating. He did not know how to skate. The subsequent rejection made him feel sad.	$600	$3,000	$3,000	12%	$4,000

   What is the amount of the Maximum Benefit?

0.5 points   

QUESTION 14

1. Special notes.	Books	Tuition	Tax	Tax bracket	Pell Grants
   This student spent $20 to take a first date to an ice skating. He did not know how to skate. The subsequent rejection made him feel sad.	$600	$3,000	$3,000	12%	$4,000

   What is the amount of the Taxable Scholarship?

0.5 points   

QUESTION 15

1. Special notes.	Books	Tuition	Tax	Tax bracket	Pell Grants
   This student's uncle, Big Lou, bought all the books this semester. The student picked up the books from the crematorium Big Lou recently acquired. Big Lou said, "Some day I may call upon you for a favor…"	$100	$1,000	$2,000	12%	$5,000

   What is the amount of the Maximum Benefit?

0.5 points   

QUESTION 16

1. Special notes.	Books	Tuition	Tax	Tax bracket	Pell Grants
   This student's uncle, Big Lou, bought all the books this semester. The student picked up the books from the crematorium Big Lou recently acquired. Big Lou said, "Some day I may call upon you for a favor…"	$100	$1,000	$2,000	12%	$5,000

   What is the amount of the Taxable Scholarship?

0.5 points   

QUESTION 17

1. Special notes.	Books	Tuition	Tax	Tax bracket	Pell Grants
   This student paid $400 for salsa dancing lessons from a local bar. He hoped his dancing skills would impress a particular female student. It did not work.	$700	$10,000	$1,000	12%	$3,000

   What is the amount of the Maximum Benefit?

0.5 points   

QUESTION 18

1. Special notes.	Books	Tuition	Tax	Tax bracket	Pell Grants
   This student paid $400 for salsa dancing lessons from a local bar. He hoped his dancing skills would impress a particular female student. It did not work.	$700	$10,000	$1,000	12%	$3,000

   What is the amount of the Taxable Scholarship?

0.5 points   

QUESTION 19

1. Special notes.	Books	Tuition	Tax	Tax bracket	Pell Grants
   This student just finished his second semester of grad school. His final paper was about Batman…in an accounting course.	$700	$10,000	$3,000	12%	$11,000

   What is the amount of the Maximum Benefit?

0.5 points   

QUESTION 20

1. Special notes.	Books	Tuition	Tax	Tax bracket	Pell Grants
   This student just finished his second semester of grad school. His final paper was about Batman…in an accounting course.	$700	$10,000	$3,000	12%	$11,000

   What is the amount of the Taxable Scholarship?

Wearwell Carpet Company is a small residential carpet manufacturer started by Don Stegall, a long-time engineer and manager in the carpet industry. Stegall began Wearwell in the early 1990s after learning about ABC, JIT, total quality management, and several other manufacturing concepts being used successfully in Japan and other parts of the world. Although it was a small company, he believed that with his many years of experience and by applying these advanced techniques, Wearwell could very quickly become a world-class competitor.

Stegall buys dyed carpet yarns for Wearwell from three different major yarn manufacturers with which he has done business for many years. He chose these companies because of their reputation for producing high-quality products and their state-of-the art research and development departments. He has arranged for two carpet manufacturing companies to produce (tuft) all of his carpets on a contractual basis. Both companies have their own brands, but they also do contract work for other companies. For each manufacturer, Stegall had to agree to use the full output of one manufacturing production line at least one day per month. Each production line was dedicated to producing only one style of carpet, but each manufacturer had production lines capable of running each type of carpet that Wearwell sold.

Stegall signed a contract with a large transport company (CTC), which specializes in carpet-related shipping, to pick up and deliver yarn from the yarn plants to the tufting mills. This company will then deliver the finished product from the tufting mills to Wearwell’s ten customers, which are carpet retailers in the ten largest residential building markets in the country. These retailers pay the shipping charges to have the carpets delivered to them. Wearwell maintains a small sales staff (which also doubles as a customer service staff) to deal with the retailers and occasionally with the end customers on quality problems that arise.

Wearwell started selling only one line of carpet, a medium-grade plush, but as new carpet styles were developed, it added two additional ines, a medium-grade berber carpet and a medium-grade textured carpet. Three colors are offered in each carpet style. By selling only medium grades with limited color choices, Stegall felt that he would reach a very large segment of the carpet market without having to deal with a large number of different products. As textured (trackless) carpets have become more popular, sales of plush have diminished substantially.

Required: Does Wearwell seem to be an appropriate setting for implementing ABC? Explain why or why not. If ABC is implemented what are likely to be the most important activities and related cost drivers?

1) Which of the following is not true?

Select all that apply:

a) Advances in technology are only possible in advanced economies.

b) Advances in technology have no impact on worker productivity

c) Advances in technology increase worker productivity

d) Technological change is a combination of invention and innovation.

2) A common measure of productivity used to track growth of GDP per capita is ________________

Select the correct answer below:

a) quantity of labor used in production

b) dollar value of wages paid to workers

c) dollar value of output per worker hour

d) quantity of output per year

3) Which of the following are examples of property rights?

Select the correct answer below:

a) The owner of a house is the only party that is able to enter into a contract selling that house.

b) If you have money in your pocket, you have the right to use that money any way you want.

c) You trained as an engineer, and you are free to work for any person or group who wants to hire you to work as an engineer.

d) All of above are examples of property rights.

4) The production function function is _____________.

Select the correct answer below:

a) the relationship between costs and revenues

b) the technical relationship between inputs and outputs

c) the same as the supply function for a firm

d) the output of a firm as a function of the number of workers

5) Which of the following examples best illustrates labor productivity?

Select the correct answer below:

a) Ron has the time to work two jobs, whereas Leila can only work one.

b) Sheena works at a factory and can produce three components per hour, whereas Ed who is her colleague can produce two components per hour.

c) Ross is more outspoken that Lena and often in business meetings, his opinion prevails over Lena's.

d) Peter can answer a complicated accounting question, whereas John cannot, but John is a better marketer than Peter.

6) The "New Economy" controversy is about

Select all that apply:

a) whether the high productivity growth rates which started in the 1990s can be sustained in future decades

b) the spread of globalization and whether it benefits or hurts countries.

c) whether labor productivity has grown or decreased in recent decades

d) the use of fiscal and monetary policy to help the economy during hard times

7) Which of the following is an example of a violation of contractual rights?

Select the correct answer below:

a) The government of South Africa seized the farms owned by foreigners.

b) Failure to pay an employee who performs services agreed upon

c) There are countries in which women are not allowed to vote.

d) none of the above illustrates a violation of contractual rights.

Abstract
On September 20, 2016, Santosh Renjit, Senior Vice President of Ebroo Clothing Company, sat in his office
pondering the new capital budgeting proposal for setting up a product line of branded shirts. As per
standard company practice, he was required to evaluate the capital budgeting project using the traditional
Net Present Value (NPV) approach and the Internal Rate of Return (IRR) criterion and present his findings to
the management committee meeting scheduled for the next week. Santosh wondered whether this new
proposal would turn out to be a good investment for his company, which was looking to deploy funds in NPV
positive projects.

Introduction
Atop Santosh Ebroo’s desk was a capital budge5ng and investment proposal – a new product line of branded
shirts that the committee was considering for launch. As the head of the finance department, Santosh was
required to work along with his team on a detailed capital budgeting analysis and present the findings to the
management committee for their approval. As per standard company practice, each capital budgeting and
investment project was evaluated using the traditional Net Present Value (NPV) approach and the Internal
Rate of Return (IRR) criterion for determining whether the company would undertake the project or not.
budgeting traditional Net Present Value (NPV) approach and the Internal Rate of Return (IRR) criterion. What would be
the basis for calculating the after-tax opera5ng cash flows for the capital project? How would he arrive at
the depreciation and working capital requirements for computing the NPV? What would be the basis for
calculating the terminal year cash flows? With all these questions in mind, Santosh decided to focus on the
proposed capital budgeting project for the next few days.

Indian Retail Market
The Indian retail market is at the cusp of a sweet spot driven by strong GDP (Gross Domestic Product)
growth, benign inflation, and rising per capita income and purchasing power of consumers. Currently, the
retail industry accounts for more than ten percent of the Indian Gross Domestic Product and approximately
eight percent of employment. The industry is expected to nearly double, from US$600 billion in 2015 to
US$1 trillion by 2020, driven by income growth, urbanization, and attitudinal shifts (Indian Terrain Annual
Report, 2015–16). It has been es5mated that, by 2030, the Indian apparel market, in particular, is expected
to grow at a CAGR (compounded annual growth rate) of approximately 10–12%, backed by increasing
affordability on account of an increase in disposable incomes, an increase in aspirations, and a shift from
unbranded to branded products by the burgeoning middle class. This trend is likely to be further
accentuated by the rise of e-commerce companies that enable shopping from anywhere, thereby leading to
increased penetration in small cities and towns (Indian Terrain Annual Report, 2015–16).

Company Background
Ebroo Clothing is a small, privately-owned clothing company based in New Delhi, India. It was founded in
1995 by Sumit Ebroo, a retired executive. Since then, the company has grown steadily by catering to middle
to low income consumers in the Delhi-national Capital Region (NCR). The company recorded a stellar
growth of 50% in its sales during the last financial year of 2015–16. With a healthy operating margin ratio
and low leverage levels, the company had been able to grow its profits at a CAGR of 25% during the last 10
years. With a good brand name and healthy financial metrics, the company was now looking to expand its
footprint to new product lines catering to middle to high income customers.

Project Investment Proposal Details
The project is estimated to be of 10 years duration. It involves setting up new machinery with an estimated
cost of as much as INR 500 million, including installation. This amount could be depreciated using the
straight line method (SLM) over a period of 10 years with a resale value of INR 15 million. The project would
require an initial working capital of INR 20 million with cumulative investment in net working capital to be
maintained at 10% of each year’s projected revenue. With the planned new capacity, the company would be
able to produce 240,000 pieces of shirts each year for the next 10 years. In terms of pricing, each shirt can
initially be sold at INR 1,300, which takes into account the target segment and competitor pricing. The
project proposal incorporates an annual increase of 3% in the price of the shirt to compensate for
inflationary impact. With regards to the raw material costs and other expenses, the project estimated the
following details:
• Raw material cost for manufacturing shirts at INR 400 per shirt, slated to rise by 5% per annum on
account of inflation.
• Other direct manufacturing costs at INR 125 per shirt with an annual increase of 5% per annum on
account of inflation .
• Selling, general, and administrative expenses (including employee expenses) at INR 35 million per annum,
expected to increase by 10% each year.
• Deprecia5on expense on the basis of SLM.
• Tax rate is assumed to be 25%.

Funding
For funding of the expansion project, the promoters agreed to infuse 50% in the form of equity with the rest
(50%) being financed from issue of new debt. Based on the current credit position and market scenario, new
debt can be raised by the company at 12% per annum. Cost of equity was assumed to be 15% by Santosh.
He reckons the requisite discounting rate or weighted average cost of capital (WACC) for NPV and IRR
calculations may be determined with the help of these assumptions.

Demand Scenario
Although the project proposal estimates a maximum annual production of 240,000 shirts, Santosh would
like the capital budgeting analysis to be done under two demand scenarios: Optimistic and Expected. The
likely annual demand estimated under each scenario is as follows:
Scenario Annual Demand
Optimistic: 240,000 shirts
Expected: 200,000 shirts

Your Mandate

I. On the basis of the financial information given in the case, calculate the after-tax operating cash flows,
NPV, and IRR under the Optimistic and Expected scenarios. Clearly specify the calculations applied.
II. Based on your analysis, what recommendation would you make on whether the company should
undertake the project or not? Clearly specify the decision based on both the NPV and the IRR criteria.

summary of the new jim crow

You have been hired to produce a family tree for three generations of a family where a disorder called sneezer syndrome is observed. People who suffer from sneezer syndrome sneeze when they smell peppermint. In order to draw a pedigree chart for this family, you interview Mike and Annie. Neither suffer from sneezer syndrome. Annie’s mother is normal, while Annie’s father sneezed at the smell of peppermint. Annie has one sister and one brother and her sister is a sneezer. While Annie’s sister has yet to have kids, her brother married a sneezer. Mike’s mother is a sneezer while his father is normal. Mike’s brother is just like their mother. In addition, this brother married a sneezer. Mike’s sister is normal - as is her husband and their one boy.

draw a pedigree chart (one point). Use the letters A and a. If more than one genotype is possible for an individual - you may write it as A with a dash - e.g. A-

Use your pedigree chart to answer the following questions (four points):

a. Annie’s brother and his wife have two kids – a sneezing boy and a normal girl. What are their genotypes ?

boy -

girl -

b. What are the genotypes of Mike’s brother-in-law (his sister’s husband) and their boy?

brother-in-law -

his son -

c. Mike and Annie have two girls and a boy. The boy and one girl are normal. What are the genotypes of their three kids?

boy -

girl 1 -

girl 2 -

d. Mike and Annie want a 4th child. What is the chance that this child will be a boy who is a sneezer. Write your answer as a reduced fraction - e.g. 1/8.

Nutritional assessment of the nutrition process, based on data derived from the interview with Kathy and Samantha's doctor's records. Samantha is a healthy eight-month-old newborn who lives with her mother Kathy, her father, and her older sister, who is almost three years old. Both parents currently work full-time, so they take girls to day care around the clock. Kathy breastfed Samantha before returning to work and booked a contribution of frozen breast milk. Now he breastfeeds her twice a day, early in the morning and before Samantha falls asleep. In the nursery, the girl drinks breast milk with a bottle. The nursery team reports that the girl shows good behavior. However, when Kathy picks her up after work, Samantha wishes they would carry her and not sit in her high chair or the one she uses to eat. If they don't load it, it cries. Samantha's sister wants to be fed as soon as she gets home. Kathy has a lot to do at home after work, making it difficult for her to carry Samantha around at such a busy time. Kathy thinks Samantha is hungry and that she would be less irritable if she fed him dinner.

1.What signals does Samantha send to demonstrate that she requires a more comfortable position than to be hungry?

2. How could Kathy change her routine to pay more attention to Samantha and cover the needs of your older daughter?

3. At eight months, is Samantha too small to overfeed on need emotional?

4. Should Kathy stop breastfeeding or continue breastfeeding to improve feeding Samantha?