Five years ago, a company was considering the purchase of 62 new diesel trucks that were 15.23% more fuel-efficient than the ones the firm is now using. The company uses an average of 10 million gallons of diesel fuel per year at a price of $1.25 per gallon. If the company manages to save on fuel costs, it will save $1.875 million per year (1.5 million gallons at $1.25 per gallon). On this basis, fuel efficiency would save more money as the price of diesel fuel rises (at $1.35 per gallon, the firm would save $2.025 million in total if he buys the new trucks).

Consider two possible forecasts, each of which has an equal chance of being realized. Under assumption #1, diesel prices will stay relatively low; under assumption #2, diesel prices will rise considerably. The 62 new trucks will cost the firm $5 million. Depreciation will be 25.17% in year 1, 38.07% in year 2, and 36.4% in year 3. The firm is in a 40% income tax bracket and uses a 11% cost of capital for cash flow valuation purposes. Interest on debt is ignored. In addition, consider the following forecasts:

Forecast for assumption #1 (low fuel prices):

Required: Calculate the percentage change on the basis that an increase would take place from the NPV under assumption #1 to the probability-weighted (expected) NPV.

Further Information (solution steps):

• Step (1): Calculate the annual expected price of diesel per gallon under each assumption, based on the probabilities outlined in the inputs section.

• Step (2): Using the annual expected fuel prices calculated in step (1), determine the increase in annual savings created by the proposed efficiency for each assumption.

• Step (3): Find the increased cash flow after taxes (CFAT) for both forecasts, based on the annual increase in fuel savings determined in step (2) as the increase in earnings before depreciation and taxes (EBDT), and the starting point from which profit is calculated for each assumption. As part of this step, you must establish annual depreciation (remember: depreciation is a noncash charge).

• Step (4): Considering the increased annual CFAT produced in step (3), calculate the NPV of the truck purchases for each assumption, based on the discount rate (cost of capital) indicated in the inputs section

• Step (5): In view of the outcomes produced in step (4), estimate the combined NPV weighed by the probability of each assumption.

• Step (6): Finally, calculate the percentage difference hypothesizing that an increase took place starting from the NPV for assumption #1 to the combined NPV worked out in step (5).

Please read the following case study. Submissions should follow the Case Study Rubric (see below).

M.R., a 59-year-old man, has been seen several times complaining of tremor in his hands that eventually made it difficult for him to work as a computer programmer. A diagnosis of essential tremor was made, and he was prescribed propranolol (Inderal) 20 mg twice daily. M.R. had good effects with the drug and had no further problems until the following June, when acute respiratory distress developed while he was picnicking in a state park with his family. On the way to the emergency room, he suffered an apparent respiratory arrest. He was admitted to the hospital and placed in the respiratory intensive care unit. It was found that M.R. had a history of hay fever and allergic rhinitis during the pollen season but had never experienced such a severe reaction.

Question 1: Why did M.R. have such a severe reaction?

Question 2:  What appropriate measures should be taken to ensure that M.R. recovers fully and does not re-experience this event ?

Question 3: What might you want to teach M.R. about this drug and its potential adverse effects?

Question 4: Using layman's terms, how do you explain to M.R. what happened; and how this situation will be avoided in the future.

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All of the following requirements must be present to potentially receive full points for the Case Studies:

Include:

• Introduction
• Statement / Summary of the Problem
• Solutions or Recommendations / Answers to the questions
• Minimum of 3 scholarly references (less than 5 years old)

- Must be a minimum of 2 pages (not including title page or reference page)

CASE STUDY: The Nepalese Himalayas, A Protected Ecosystem?

In May of 2007 some 43 expeditions totalling 470 climbers summitted Mount Everest from both the Nepalese and Tibetan sides of the mountain. At one stage over 60 climbers were on or near the summit waiting (in some cases up to 1–2 hours) in order to get their chance to stand on the highest point in the world. If those 470 climbers had been asked why they chose to climb Mt Everest, somewhere in their answers would have been sentiments expressing a desire to experience one of the wildest places on earth. Technological innovations in mountaineering equipment, such as advanced clothing, bottled oxygen and the growth in the popularity of commercialized expeditions where clients are charged between US$40,000 and US$50,000 to be guided up the mountain will continue to attract hundreds of climbers as they attempt to fulfill a desire to experience one of the wildest places on earth. Research carried out in Sagarmatha (Mt Everest) National Park indicates that ecosystems above 4000 metres have been significantly impacted by tourism in the past 30 years. Impacts include the overharvesting of fragile alpine shrubs and plants for expedition and tourist lodge fuel, overgrazing, accelerated erosion, and uncontrolled lodge building. The present Nepalese government will continue to encourage tourism, as it is the country’s highest income earner.

YOUR ARGUMENT FOR OR AGAINST: A drastic reduction in expedition numbers and call for the complete banning, for 1 year, of climbing on all peaks over 8000 metres high. This reduction is necessary in trying to mediate a compromise between the conflicting needs of access, availability and presentability of an environmental or ecological product – wilderness – with those of the local population and the regenerative capacity of the ecosystem.

SUPPORT YOUR ARGUMENT WITH FACTS.

Our firm’s “Attorney-­?Client Access Policy” specifies that unless it’s an emergency, our clients can gain access to one of our attorneys either by scheduling a telephone appointment or else by scheduling an in­?office appointment. We do not tell clients we’ll call them back “within 24 hours”. Instead we schedule telephone appointments for a date and time certain.

We define an “emergency” as being a situation where a person’s death is imminent, the police are trying to interrogate a client, or when someone is in the act of doing something that threatens the client’s safety. We tell our clients that if their physical safety is at risk they should call 911 before calling our office. Still, as you should be able to imagine if you’re the right candidate for this position, the occasional worried client does manage to bluff his or her way through and will wind up on the telephone with you.

It’s 3pm on a sunny Wednesday afternoon. The attorney is taking a much­?needed break to clear his head by fishing at the park. He is at his favorite spot and has a cell phone with him in case there is an emergency.

A client calls and winds­?up on the phone with you with the following recitation of facts:

“I’m an important client of the firm, have been for some time. I’m at the bank and have been here for over an hour trying to get them to listen to what attorney told me to do. The bank manager is here and unless he talks to the attorney he’s going to close my account. I consider this to be an emergency and I insist that you get the attorney on the phone right away or at least get him to call me back as soon as humanly possible!”

How do you handle this situation?

PARASITOLOGY QUESTION:

Amoeba case study

Calatagan is a third-class municipality in the province of Batangas, Philippines. It has a total population of 30,500 with a total of 8 barangays. The municipality’s major revenue comes from agriculture and aquaculture. A section of the population is employed in “Ang Pulo,” an island housing a mangrove forest conservation park located in the northeast. Some residents of Calatagan are settled along the major highway that connects it to neighboring municipalities, while some live further inland, usually near farms. Major streets are cemented but small streets are not. Deep well is the main source of water but there is one water distillery station serving three barangays in the municipality. In the summer of 2005, there were 950 cases of a rare eye infection in one barangay that affected residents of different ages. The infection is characterized by severe pain and reddening of the cornea. Antiviral drugs where administered but the patients’ condition did not improve. There were also 1500 reported cases of diarrhea by the RHU. Stool examination results from specimens submitted by patients revealed an increase in WBC count. Strange crystal-like structures were also seen under the microscope in some of the stool specimens. The mayor of Calatagan ordered an immediate investigation of the probable cause of the cases.

Questions to answer:

1. Identify the probable cause of the incidents in Calatagan, Batangas. Justify. (provide references for your answers)

2. What could have been the sources of infection of the residents in Calatagan? Describe the probable mode of infection for each identified cause. Cite examples and references.

3. Briefly provide a possible plan of action on how to control the cases in Calatagan.

With the given information below, how to find the interest cost in year 1,2 and 3?

An investment company is planning to invest by buying over an existing hotel.

Some information concerning their project:

• Land will be purchased for a value of 7.5 millions ;

• A building will be constructed for a total value of 42 millions, estimated value after 10 years : 12 millions ;

• Equipment will be purchased for a value of 12 millions and will be completely depreciated over a period of 8 years ,

• Other investments are estimated to be 4,5 millions and will be completely depreciated after 5 years. This investment includes the purchase of the basic inventories, opening costs, etc…

• Revenues of the first year (365 days in a year) of operations are estimated as follow :

o Rooms division : 198 rooms per day at 500 francs per night

o Restaurant : 260 covers per day at averagely 100 francs per cover

o Breakfast : 150 covers per day at 20 francs each

o Banquet and convention centre : 4 millions

• An annual increase of 2% is expected ;

• The F&B costs are forecasted at 35% of F&B revenue ;

• Salaries and wages, including social charges, are forecasted at 40% of the total revenues ;

• Other operating costs, excepted depreciation costs and interest costs, are forecasted to be 16,000,000, increasing by 2% per year ;

• The income tax rate is of 35%

• The investment expenses are as follow :

o Year -1 : 85%

o Opening : 15%

• This project is financed as follow : 65% by contracting a mortgage, 35% with owner’s capital stock

• The mortgage contracted determines a interest rate of 5% and a fixed reimbursement of 3,5 millions, 1st payment at the end of year 1

• A dividend of 5% will be distributed to the shareholders starting from year 1

PARASITOLOGY QUESTION:

Amoeba case study

Calatagan is a third-class municipality in the province of Batangas, Philippines. It has a total population of 30,500 with a total of 8 barangays. The municipality’s major revenue comes from agriculture and aquaculture. A section of the population is employed in “Ang Pulo,” an island housing a mangrove forest conservation park located in the northeast. Some residents of Calatagan are settled along the major highway that connects it to neighboring municipalities, while some live further inland, usually near farms. Major streets are cemented but small streets are not. Deep well is the main source of water but there is one water distillery station serving three barangays in the municipality. In the summer of 2005, there were 950 cases of a rare eye infection in one barangay that affected residents of different ages. The infection is characterized by severe pain and reddening of the cornea. Antiviral drugs where administered but the patients’ condition did not improve. There were also 1500 reported cases of diarrhea by the RHU. Stool examination results from specimens submitted by patients revealed an increase in WBC count. Strange crystal-like structures were also seen under the microscope in some of the stool specimens. The mayor of Calatagan ordered an immediate investigation of the probable cause of the cases.

Questions to answer:

1. Identify the probable cause of the incidents in Calatagan, Batangas. Justify. (provide references for your answers)

2. What could have been the sources of infection of the residents in Calatagan? Describe the probable mode of infection for each identified cause. Cite examples and references.

3. Briefly provide a possible plan of action on how to control the cases in Calatagan.

ABC company is considering producing a new range of smartphones that will require it to build a new factory. Feasibility studies have been done on the factory which cost $5 million. The studies have found the following:

1. The factory will cost $25 million and will have a useful life of 20 years.

2. The land where the factory will go is currently used as a carpark for workers and it is assumed that the company will have to pay $200000 per year for their workers to park in a nearby carpark.

3. The factory will be depreciated on a straight line basis and will have a salvage value of $0 but it is believed that most of it can be sold for scrap after 20 years for $50000.

4. Due to the nature of the business they are in, they will have to perform some environmental tests to make sure that some of the chemicals they are using are not entering the ground water around the factory. These tests will be performed every 5 years and cost $625000.

5. Through the building of this factory and the selling of the phones it produces, it’s revenue will increase by $5 million in year 1 and remain at this level for the operational life of the factory.

6. The extra costs that the company accrues per year due to the project are $435000 for labour, $50000 for overhead like power and water bills and marketing costs for the new line of phones will be $500000 per year but will decrease by $15000 per year as the phone gains greater penetration.

7. The company’s current cost of capital is 8% per year.

8. The tax rate is 30%.

9. The project requires an initial investment in working capital of $1000000 that is returned in year 20.

Calculate the break even point for the following variables:

a. The cost of capital.

b. The yearly revenue.

c. The labour cost.

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.