Silver Lining Inc. has a balanced scorecard with a strategy map that shows that delivery time and the number of erroneous shipments are expected to affect the company’s ability to satisfy the customer. Further, the strategy map for the balanced scorecard shows that the hours from ordered to delivered affects the percentage of customers who shop again, and the number of erroneous shipments affects the online customer satisfaction rating. The following information is also available:

• The company’s target hours from ordered to delivered is 40.
• Every hour over the ordered-to-delivered target results in a 0.5% decrease in the percentage of customers who shop again.
• The company’s target number of erroneous shipments per year is no more than 65.
• Every error over the erroneous shipments target results in a 0.5 point decrease in the online customer satisfaction rating and an added future financial loss of $500.
• The company estimates that for every 1% decrease in the percentage of customers who shop again, future profit decreases by $4,000 and market share decreases by 0.3%.
• The company also estimates that for every 1 point decrease in the overall online customer satisfaction rating (on a scale of 1 to 10), future profit decreases by $3,000 and market share decreases by 0.6%.

Using these estimates, determine how much future profit and future market share will change if:

• Average hours from ordered to shipped is 27.5.
• Average shipping time (hours from shipped to delivered) is 16.3.
• Number of erroneous shipments is 80.

Total decrease in future profit $37600(which was wrong)

Round your answer to two decimal places.

Total decrease in future market share 5.07%(which was wrong)

Mr. Jones is a retired 84 year-old farmer. He is still living in the farmhouse, but rents the farm land. He has an 8^th grade education. He is recently widowed, living alone, and adjusting to managing his health care on his own since his wife passed away. One area of concern is his medication management since he is taking 10 different prescription medications plus his 6 nonprescription medications. Mr. Jones is currently taking:

Ferrous sulfate 240 mg daily for anemia

Protonix 20 mg daily for GERD

Tums 1-2 tabs PRN for GERD

Flomax 0.4 mg daily for BPH

Restoril 15 mg as needed for sleep

Aspirin 81 mg daily for his heart

Lasix 40 mg daily for HTN

KCl 10 mEq daily for hypokalemia

Lisinopril 20 mg daily for HTN

Metoprolol 100 mg BID for HTN

Digoxin 125 mcg daily for A. Fib

Coumadin 4 mg on M/W/F and 5 mg on all other days for A. Fib

Nitroglycerin 0.3 mg q5 minutes PRN for angina

Acetaminophen 325 mg PRN for pain

Ginkgo Biloba 2 capsules daily for memory

St. John’s wort 1 capsule daily for anxiety

Directions:

Do any of these medications interact with each other? If so, which?

What effects can caffeine, nicotine, alcohol, or other nutrients have on the specific medications that Mr. Jones is taking?

How can age-related changes affect his medication effectiveness?

What other information would you like to know to ensure medication safety?

Consider the following payoff table in which D1 through D3 represent decision alternatives, S1 through S4 represent states of nature, and the values in the cells represent return on investments in millions.

    S1 S2 S3 S4

D1 30 20 -50 100

D2 60 150 40 -80

D3 40 10 80 80

1. What are the decision alternatives, and what are the chance events for this problem?

2. Construct a decision tree

3. What is the preferred alternative when the decision maker is optimistic?

4. What is the preferred alternative when the decision maker is conservative?

5. What is the preferred alternative when using the minimax regret criterion?

6. Suppose that each state of nature is equally likely to occur, what is the expected value of the

   payoff?

7. Assume the probabilities remain the same under state of natures in the preceding question (part

   f), what is the expected value of perfect information. (show your work to receive full credit)

8. Suppose P(s1) = 0.4, P(s2) = 0.3, and P(s3) = 0.2, what is the best decision using the expected

   value approach?

9. Perform sensitivity analysis on the best decision alternative payoffs from the preceding question (part h). Assuming the probabilities remain the same (as in part h), find the range of payoffs under state of nature s1 that will keep the solution found in the preceding question (part h) optimal. (show your work to receive full credit)

Note: You need to be able to interpret the results for parts c-e of this problem.
For part f, you need to know how to construct a risk profile for the optimal decision For parts g and i, you need to show your work to receive full credit.

Mr. Jones is a retired 84 year-old farmer. He is still living in the farmhouse, but rents the farm land. He has an 8th grade education. He is recently widowed, living alone, and adjusting to managing his health care on his own since his wife passed away. One area of concern is his medication management since he is taking 10 different prescription medications plus his 6 nonprescription medications. Mr. Jones is currently taking:

Ferrous sulfate 240 mg daily for anemia Protonix 20 mg daily for GERD Tums 1-2 tabs PRN for GERD Flomax 0.4 mg daily for BPH Restoril 15 mg as needed for sleep Aspirin 81 mg daily for his heart Lasix 40 mg daily for HTN KCl 10 mEq daily for hypokalemia Lisinopril 20 mg daily for HTN Metoprolol 100 mg BID for HTN Digoxin 125 mcg daily for A. Fib Coumadin 4 mg on M/W/F and 5 mg on all other days for A. Fib Nitroglycerin 0.3 mg q5 minutes PRN for angina Acetaminophen 325 mg PRN for pain Ginkgo Biloba 2 capsules daily for memory St. John’s wort 1 capsule daily for anxiety

Answer these questions

Do any of these medications interact with each other? If so, which?

What effects can caffeine, nicotine, alcohol, or other nutrients have on the specific medications that Mr. Jones is taking?

How can age-related changes affect his medication effectiveness?

What other information would you like to know to ensure medication safety?

Aiolos plc. is a small firm that produces and sells industrial machinery. The
following figures of the company are from the most recent financial period:
- Sales €20,000,000
- Earnings before interest and taxes €2,000,000
- Debt €10,000,000
- Interest expenses before tax €1,000,000
- Capital Expenditures €1,000,000
- Depreciation expenses are 50% of capital expenditures
- Book value of equity € 10,000,000
Also, you have collected financial information concerning the industrial
machinery sector of listed companies (all figures are on an average basis):
- Beta coefficient of listed companies of the sector 1.30
- Financial leverage in terms of debt to market value of equity 20%
- Firms in the sector trade three times (3x) their book value of equity.
- Effective tax rate 20% tax rate.
The management of Aiolos plc. expects that the company will experience a twostage
growth pattern. Specifically, during the first period which will last for the
next 5 years, net income, capital expenditures and depreciation will have a 25%
growth rate per annum, whereas during the second period (i.e. steady state),
net income will have a 7% growth rate to infinity and capital expenditures and
depreciation will offset each other.
Working capital requirements are estimated to remain stable during both growth
periods, while the proportion of net capital expenditure changes with debt will
remain to 0.3 for the next five years. The yield-to-maturity of the 10 year
government bond is 3%, while the market risk premium is 5%.

Required:
A. Estimate the cost of equity for this Aiolos plc.
B. Estimate the value of the owner's stake in Aiolos plc., using the free cash
flow to equity approach.
C. Identify and briefly describe any qualitative aspects of growth.

Question 3

Again ignore any trend or seasonality in the data.  Suppose the company uses exponential smoothing to make forecasts.  

1. What are the forecasts for periods Q2 Year 1 through Q4 Year 5 assuming alpha = 0.3. Assume that the forecast for Q1 Year 1 was 25 units.
2. What are the forecasts for periods Q2 Year 1 through Q4 Year 5 assuming alpha = 0.8.  Assume that the forecast for Q2 Year 1 was 25 units.
3. Compare the accuracies of the forecasts in (a) and (b) using Mean Absolute Percent Error.  Which value of alpha gives us the better forecasts?

Question 4

Now make adjustments for trend and seasonality.

1. Quantify the trend in the time series.  What does the trend equation tell you?  
2. Quantify the seasonality in the time series by calculating seasonality indexes.  What do these indexes tell you?
3. Using the trend and the seasonality information from (a) and (b) make forecasts from Q1 Year 1 through Q4 Year 5.  
4. Use MAPE to calculate the accuracy of your forecasts.

Question 5

1. Compare the preferred method in Question 2, the preferred method in Question 3, and the method in Question 4.  Which one would you choose on the basis of MAPE?
2. Using the method in Question 4 make forecasts for the 4 quarters of Year 6.

The following table lists a portion of Major League Baseball’s (MLB’s) leading pitchers, each pitcher’s salary (In $ millions), and earned run average (ERA) for 2008.

a-1. Estimate the model: Salary = β₀ + β₁ERA + ε. (Negative values should be indicated by a minus sign. Enter your answers, in millions, rounded to 2 decimal places.)Click here for the Excel Data File

Salaryˆ=Salary^=    +  ERA

a-2. Interpret the coefficient of ERA.

• A one-unit increase in ERA, predicted salary decreases by $6.37 million.

• A one-unit increase in ERA, predicted salary increases by $6.37 million.

• A one-unit increase in ERA, predicted salary decreases by $16.70 million.

• A one-unit increase in ERA, predicted salary increases by $16.70 million.

b. Use the estimated model to predict salary for each player, given his ERA. For example, use the sample regression equation to predict the salary for J. Santana with ERA = 2.25. (Round coefficient estimates to at least 4 decimal places and final answers, in millions, to 2 decimal places.)

c. Derive the corresponding residuals. (Negative values should be indicated by a minus sign. Round coefficient estimates to at least 4 decimal places and final answers, in millions, to 2 decimal places.)

Measure Maps

Silver Lining Inc. has a balanced scorecard with a strategy map that shows that delivery time and the number of erroneous shipments are expected to affect the company’s ability to satisfy the customer. Further, the strategy map for the balanced scorecard shows that the hours from ordered to delivered affects the percentage of customers who shop again, and the number of erroneous shipments affects the online customer satisfaction rating. The following information is also available:

• The company’s target hours from ordered to delivered is 20.
• Every hour over the ordered-to-delivered target results in a 0.5% decrease in the percentage of customers who shop again.
• The company’s target number of erroneous shipments per year is no more than 65.
• Every error over the erroneous shipments target results in a 0.5 point decrease in the online customer satisfaction rating and an added future financial loss of $700.
• The company estimates that for every 1% decrease in the percentage of customers who shop again, future profit decreases by $3,000 and market share decreases by 0.3%.
• The company also estimates that for every 1 point decrease in the overall online customer satisfaction rating (on a scale of 1 to 10), future profit decreases by $2,000 and market share decreases by 0.6%.

Using these estimates, determine how much future profit and future market share will change if:

• Average hours from ordered to shipped is 28.5.
• Average shipping time (hours from shipped to delivered) is 14.3.
• Number of erroneous shipments is 80.

Total decrease in future profit $

Round your answer to two decimal places.

Total decrease in future market share %

TOPIC: PORTFOLIO ANALYSIS

show all workings step by step

Question 1

M & M (Pvt) Ltd, a small entity in the mining industry is involved in operations that result in the company having stocks of cash resource. The company has thus decided to create a portfolio of investments comprising of agriculture notes, a debt instrument, and ordinary shares of a company that is into telecommunications. The intended investment in Agriculture Notes is sixty percent and the remainder in ordinary shares. Forecasts have shown the following possibilities in as far as scenarios and their chances of occurring as well as annual returns are concerned.

Required

1. Determine the annual expected return for each scenario for this portfolio.         
2. If the target of the company is to get at least $16 800/ annum from funds invested, does this portfolio presents such prospect overally? Support your answer with workings         
3. Compute the risk of each investment in the portfolio if it were to stand alone and which one has greater risk. Use the standard deviation.
4. Calculate the covariance of returns for the above investment and interpret.
5. Determine the correlation coefficient of investment returns in the portfolio and comment on their potential to reduce diversifiable risk.
6. Determine the portfolio risk as measured by standard deviation and comment on whether the portfolio has been constructed using correct investments.         
7. If the objective of the portfolio manager is not to have expected returns fluctuating by more than $1 500/annum. Can it be concluded that this portfolio is ideal for the company and why?

Question 1
M & M (Pvt) Ltd, a small entity in the mining industry is involved in operations that result
in the company having stocks of cash resource. The company has thus decided to
create a portfolio of investments comprising of agriculture notes, a debt instrument, and
ordinary shares of a company that is into telecommunications. The intended investment
in Agriculture Notes is sixty percent and the remainder in ordinary shares. Forecasts
have shown the following possibilities in as far as scenarios and their chances of
occurring as well as annual returns are concerned.
Scenarios Probability Return on Agric
Notes ($)
Return on Ordinary
Shares ($)
Booming
Economy
0.3 25 000 10 000
Normal
Economy
04 20 000 11 000
Depressed
Economy
0.2 18 000 22 000
Recession 0.1 10 000 28 000
Required
a) Determine the annual expected return for each scenario for this portfolio. (8
marks)
b) If the target of the company is to get at least $16 800/ annum from funds
invested, does this portfolio presents such prospect overally? Support your
answer with workings
c) Compute the risk of each investment in the portfolio if it were to stand alone and
which one has greater risk. Use the standard deviation.
d) Calculate the covariance of returns for the above investment and interpret. (7
marks)
e) Determine the correlation coefficient of investment returns in the portfolio and
comment on their potential to reduce diversifiable risk.
f) Determine the portfolio risk as measured by standard deviation and comment on
whether the portfolio has been constructed using correct investments. (5
marks)
g) If the objective of the portfolio manager is not to have expected returns
fluctuating by more than $1 500/annum. Can it be concluded that this portfolio is
ideal for the company and why?