Assignment #8                                                                       

Problem A: Linear Regression

1) Below is some data from the late 1800s and early 1900s indicating a correlation between the number of ministers in New England and the amount of Cuban rum imported to Boston during those years.

1. Find the correlation coefficient between number of minister and amount of Cuban rum. Describe what it means.

2. Find a linear model that relates the number of ministers and the amount of rum. What are

the values of ?₀ and ?₁?

3. Interpret the slope of the least-squares regression line in context.

4. Use the linear model to predict the amount of rum barrels if the number of ministers was 8000? Is this an example of extrapolation or interpolation.

5. Find the residual for 23024 ministers.

6. Test whether a linear relation exists between the number of ministers and Cuban rum at the 5% level of significance. Show all steps including conditions.

Analysis of South American Operations

Claire Jackson (CEO) of Easy Learning (EL) is considering discontinuing operations in South America, which are based in Argentina. For a variety of reasons it has been a challenge for EL to grow the busi- ness in this region and costs continue to rise because of high inflation. Results from the most recent fiscal year just ended are shown below.

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $400,000

Variable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000

Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $220,000

Fixed expenses .................................                               310,000

Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . ($90,000)

If the South American operations are discontinued, Jackson has identified the following implications:

1.  Assets with an original cost of $485,000, mostly leasehold improvements and computer equipment, can be sold for $15,000. Assume that the assets are completely written off for both accounting purposes and tax purposes (i.e., $0 NBV and UCC) and that the salvage proceeds of $15,000 are not taxable. 


2. Severance pay for the three full-time employees will total $50,000. Severance pay is a tax deductible expense. 


3.  Of the total annual fixed expenses of $310,000, $40,000 represents an allocation from head office for computer support and will continue to be incurred even if the South American operations are discontinued. 


4.  The corporate tax rate in Argentina is 35%. 


Jackson is also considering the option of trying to make the South American operations profitable. She believes that with more emphasis on marketing and sales, EL could be successful. Details and assumptions made by Jackson for this option are as follows:

1.  To increase sales, an additional marketing specialist would be hired immediately at an annual cost of $110,000 including benefits. This is $20,000 higher than the next highest paid employee in EL's Argentina office. 


2.  The new marketing specialist should be able to acquire two new customers in each of the next two years and each customer will generate annual revenue of $100,000. One additional new customer will be acquired each year thereafter and each will generate annual revenue of $100,000. 


3.  Hiring a new marketing specialist will necessitate the purchase of office furniture with a total cost of $5,000. The CCA rate in Argentina for office furniture is 10%. Assume there is no CCA half- year rule in Argentina. 


4.  EL will not lose any existing customers over the next five years and will be able to retain all newly acquired customers over that same period. This contrasts with the typical churn rate for high-tech companies of about 20% per year. 


5.  Variable expenses will continue at the same rate as in the most recent fiscal period for the next five years. 


6.     The marketing specialist will receive a commission of 10% of revenue generated from new cus- tomer acquisitions. 


7.  Existing total fixed expenses of $310,000 per year, including the $40,000 allocation from head of- fice for computer support, will be unchanged for the next five years. 


Required:

1.    Should the South American operations be discontinued or should Jackson hire a new marketing 
specialist in an attempt to grow the business? Because of the uncertainty in the South American operating environment, Jackson wants you to preparee your analysis of the two options for a five- year period. EL has a required return of 12%. 


2.  Regardless of your recommendation for part 1, what qualitative factors should Jackson consider when deciding whether or not to discontinue operations in South America? 


3.  Assume that the marketing specialist will be able to acquire two new customers in the first year, but thereafter only one new customer will be acquired each year. Each new customer will generate an- nual revenue of $100,000. Given this new assumption, revise your analysis of the option to con- tinue operations in South America. Assume all other details and assumptions regarding this option remain unchanged. Should the operations be discontinued or should the new marketing specialist be hired? 


4.  What do the results of the revised analysis in part 3 above suggest about the riskiness of the option to hire a new marketing specialist? How could this risk be incorporated in your analysis? 


In the Siege of 1702 at St. Augustine we have an early example of a common feature Americans always showed in their wars - initiative. As a later famous American general said "A good plan violently executed now, is better than a perfect plan executed next week." (George S. Patton). Here we see an early application of that idea. Shortly after England went to war, South Carolina decided on its own to invade Florida and proceeded promptly. While the action was not a success,it was a decent try and eventually later attempts on the same fort were a success. So your question for this assignment is, what was the primary reason for this South Carolina assault on St Augustine? Several potential reasons are provided in the article, pick one (4 points), explain why it is the primary reason, and support your idea with at least two historical examples.

Is there a significant difference at a = 0.05 in the mean heights in feet of cliffs in South America and the ones in Canada? The data are shown.  

       South America Canada

487 1236 1377 714 725 964

473 1312 984 1137 320 830

900 345 359 721 1890

Write an executive summary with 200-250 words about the Benoni Mining Incident for the passage below:

Mining and South Africa’s Economic History

Mining is an industry that is closely linked to South Africa’s history and economic development. In fact, South Africa’s very first commercial mining company was established as early as 1846 to exploit the newly discovered copper reserves in an area near Cape Town. Not long thereafter, the discovery of diamonds and gold in the late 1800s (near Johannesburg) created a “gold rush” that resulted in an influx of foreigners who arrived in South Africa in search of new found riches. South Africa would forever be transformed. New immigrants arrived from all over Africa, Europe, Australia and New Zealand in search of gold. Temporary housing (tents) for the new arrivals became permanent housing and towns sprouted up where none had existed just a short time before. The discovery of diamonds and gold and the annexation of lands that contained these rich deposits by the British led to the Boer Wars of the late 1800s.

The mining industry continued to thrive throughout the 1900s, fueling the country’s economic growth. Revenue from gold exports was a source of capital used to purchase machinery and oil, needed to support the country’s expanding manufacturing base. During much of the 20^th Century, mining techniques improved. Advances were made in poisonous gas detection methods, more efficient mining methods – including even some chemical extraction methods of minerals from low-grade ore, and better ventilation systems. Gold mining peaked in 1970 when South Africa accounted for 68% of global production ²⁾. Since then, South Africa’s share of global gold production has declined precipitously. In 2012 South Africa accounted for only 6% of global gold production. It was the country’s worst year in gold production since 1905, according to Gold Investing News. South Africa currently ranks as the 5^th largest gold producer in the world, and has been overtaken by China, Australia, the United States, and Russia (ranked 1-4, respectively in global gold production) ³⁾. As a result of the increased global competition, South Africa has had to close older, marginal and less profitable mines. When several gold mines closed in the 1990s, thousands of mine workers lost their jobs. Some of the mines still in operation are deeper and more challenging to access, and likely less profitable. The economic factors pose a serious threat to the workers, but there is another threat that has resulted from South Africa’s declining world position in gold production: a significant increase in the number of abandoned mine shafts. South Africa’s Council for Geoscience estimates that there are some 4,400 abandoned mines in the country, almost four times the number of operational mines!

Despite the decline in gold, mining continues to be a vital sector of South Africa’s economy. Today, South Africa is the world’s largest producer of chrome, manganese, platinum, vanadium and other minerals, and the world’s second largest producer of ilmenite, palladium, rutile and zirconium ⁴⁾. In addition, it contains significant reserves of iron ore, chromium, copper, uranium, silver, beryllium, and titanium ⁵⁾. In 2013, the nation’s GDP totaled $350.6 billion, and mining accounted for $17.5 billion, or 5% of GDP ⁶⁾. Other estimates that consider the direct and indirect impacts of the mining sector on the nation’s GDP state that mining gives rise to a “real” contribution to South Africa’s GDP of between 15-20% ⁷⁾. An estimated 500,000 workers are directly employed in the South African mining sector, while other estimates that take into account the positive economic ripple effects created from direct and indirect employment in the sector attribute 1,365,000+ employments to mining. Given the scale and scope of South Africa’s mineral resources, mining will likely continue to be an integral part of the nation’s economic, social and political landscape.

Tiffany & Company is a luxury jeweler and specialty retailer that sells timepieces, sterling, china, crystal, fragrances, and accessories through its retail stores worldwide. Signet Jewelers Ltd. operates a number of well-known retail stores (Belden Jewelers and Kay among them) that sell moderately priced jewelry and other items. Selected financial on about each company for the year ended January 31, 2015, follows:

REQUIRED:

(a) The profit margin at at Tiffany & Co. is higher than at Signet Jewelers. What is it about each company's strategy and positioning that might explain the profit margin difference? You may want to visit each company's website before answering this question.

(b) The asset turnover at Signet Jewelers is higher than at Tiffany & Company. What is it about company's strategy and positioning that might explain the asset turnover difference?

SkyAir, a large multi-national airline has many responsibility centres.

A. The South American division, which is responsible for operations in South America and has the authority to purchase new aircraft and add/cut routes.

B. The Pilot Training group, which is responsible for training new SkyAir pilots.

C. The reservations group, which is responsible for making SkyAir reservations

D. The maintenance division, which is responsible for SkyAir aircraft maintenance. As well, from time-to-time will also do maintenance for other airlines, but this represents less than 2% of revenues.

E. The fuel group, which is responsible for SkyAir fueling aircraft.

Required: Briefly identify how should each of these be evaluated:

(Following Cost Accounting Methods)

Green Acres Lawn Equipment (GALE), headquartered in St. Louis, Missouri, is a privately owned designer and producer of traditional lawn mowers used by homeowners. GALE provides most of the products to dealerships, which, in turn, sell directly to end users. In the United States, the focus of sales is on the eastern seaboard, California, the Southeast, and the south central states, which have the greatest concentration of customers. Outside the United States, GALE’s sales include a European market, a growing South American market, and developing markets in the Pacific Rim and China. The market is cyclical, but the different products and regions balance some of this, with just less than 30% of total sales in the spring and summer (in the United States), about 25% in the fall, and about 10% in the winter. Annual sales are approximately $180 million.

GALE has developed a prototype for a new snow blower for the consumer market. This can exploit the company’s expertise in small-gasoline-engine technology and also balance seasonal demand cycles in the North American and European markets to provide additional revenues during the winter months. Initially, GALE faces two possible decisions: introduce the product globally at a cost of $900,000 or evaluate it in a North American test market at a cost of $300,000.

If it introduces the product globally, GALE might find either a high or low response to the product. Probabilities of these events are estimated to be 0.6 and 0.4, respectively. With a high response, gross revenues of $1,800,000 are expected; with a low response, the figure is $500,000. If it starts with a North American test market, it might find a high response or a low response with probabilities 0.5 and 0.5, respectively. This may or may not reflect the global market potential.

In any case, after conducting the marketing research, GALE next needs to decide whether to keep sales only in North America, market globally, or drop the product. If the North American response is high and GALE stays only in North America, the expected revenue is $1,000,000. If it markets globally (at an additional cost of $200,000), the probability of a high global response is 0.8 with revenues of $1,800,000 ($500,000 if the global response is low).

If the North American response is low and it remains in North America, the expected revenue is $200,000. If it markets globally (at an additional cost of $600,000), the probability of a high global response is 0.1, with revenues of $1,800,000 ($500,000 if the global response is low).

Do a decision tree for this.