A random sample of 22 residential properties was used in a regression of price on nine different independent variables. The variables used in this study were as follows:

PRICE 5 selling price (dollars)
BATHS 5 number of baths (powder room 5 1/2 bath)

BEDA 5 dummy variable for number of bedrooms (1 5 2 bedrooms, 0 5 otherwise) BEDB 5 dummy variable for number of bedrooms (1 5 3 bedrooms, 0 5 otherwise) BEDC 5 dummy variable for number of bedrooms (1 5 4 bedrooms, 0 5 otherwise)

CARA 5 dummy variable for type of garage (1 5 no garage, 0 5 otherwise) CARB 5 dummy variable for type of garage (1 5 one-car garage, 0 5 otherwise)

AGE 5 age in years
LOT 5 lot size in square yards

DOM 5 days on the market

Row     PRICE   BATHS   BEDA    BEDB    BEDC    CARA    CARB    AGE     LOT     DOM     
1       25750   1.0     1       0       0       1       0       23      9680    164     
2       37950   1.0     0       1       0       0       1       7       1889    67      
3       46450   2.5     0       1       0       0       0       9       1941    315     
4       46550   2.5     0       0       1       1       0       18      1813    61      
5       47950   1.5     1       0       0       0       1       2       1583    234     
6       49950   1.5     0       1       0       0       0       10      1533    116     
7       52450   2.5     0       0       1       0       0       4       1667    162     
8       54050   2.0     0       1       0       0       1       5       3450    80      
9       54850   2.0     0       1       0       0       0       5       1733    63      
10      52050   2.5     0       1       0       0       0       5       3727    102     
11      54392   2.5     0       1       0       0       0       7       1725    48      
12      53450   2.5     0       1       0       0       0       3       2811    423     
13      59510   2.5     0       1       0       0       1       11      5653    130     
14      60102   2.5     0       1       0       0       0       7       2333    159     
15      63850   2.5     0       0       1       0       0       6       2022    314     
16      62050   2.5     0       0       0       0       0       5       2166    135     
17      69450   2.0     0       1       0       0       0       15      1836    71      
18      82304   2.5     0       0       1       0       0       8       5066    338     
19      81850   2.0     0       1       0       0       0       0       2333    147     
20      70050   2.0     0       1       0       0       0       4       2904    115     
21      112450  2.5     0       0       1       0       0       1       2930    11      
22      127050  3.0     0       0       1       0       0       9       2904    36      

Using the 9 variable model, give a 95% prediction interval for a house that has 2 baths, 3 bedrooms, 1 car garage, is 10 years old, has 2000 square feet and has been on the market for 60 days.

Please show minitab step by step!

Bob is evaluating the merits of a potential investment in a drone manufacturing company. He already owns the land for the facility, but he would need to purchase and install the assembly machinery for $240,000. The machine falls into the MACRS 5-year class, and it will cost $20,000 to modify it for Bob's particular needs. A consultant, who charged Bob's $10,000 for his services, already completed the process of restructuring the facility for the required zoning and industry standards. The facility require additional net working capital of $5,000. Drone sales are expected to yield before tac revenues of $450,000 per year with labor costs of $200,000 per year and fixed costs of $175,000 per year. Bob expects the machine to be used for 5 years and then sold for $55,000.

Bob has asked you to evaluate his proposed project, and he has provided you with the following information about the investment.

Bob's firm has a target capital structure of 25% debt, 5% preferred stock, and 70% common equity. Its bonds have a 9% coupon, paid semiannually, a current mature of 20 years, and sell at par for $1,000. The firm could sell, at par, $100 preferred stock that pays a 5.75% annual dividend, but flotation costs of 4% would be incurred. The firm's beta is 1.25, the risk-free rate is 3%, and the expected rate of return on the market portfolio is 9.4%. The company is a constant growth firm that just paid a dividend of $2.00, sells for $30 per share, and has a growth rate of 5%. The firm's policy is to use a risk premium of 4% when using the bond-yield-plus-risk-premium method to find the cost of equity. The firm's marginal tax rate is 42%.

In addition to finding the firm's average-risk cost of capital, Bob has also asked you to calculate a risk-adjusted cost of capital. He believes that the project's cash flows for years 1 through 5 will increase by 10% in particularly good market, and the cash flows will decrease by 10% in a particularly bad market. He estimates that there is a 15% probability of a good market occurring, a 25% probability of a bad market occurring, and a 60% probability of an "average" market occurring.

To complete this task of calculating a risk-adjusted cost of capital, you will need to find the expected NPV, its standard deviation, and its coefficient of variation (CV). Bob informs you that his average project has a CV in the range of 1.0 to 2.0. If the CV of a project being evaluated is greater than 2.0, 2 percentage points are added to the cost of capital for the evaluation. Similarly, if the CV is less than 1.0, 1 percentage point is deducted from the cost of capital for the evaluation.

In the end, Bob wants to know whether to accept or reject the project. He expects you to make your conclusion using 3 techniques: discounted payback method, NPV analysis, and IRR analysis.

Throughout your analysis, you are to be as thorough as possible, documenting all of your work to support your conclusion. Please show the following calculations:

1) Bob's WACC for an average-risk project

2) Annual cash flow estimates for the project (including the initial outlay)

3) A Risk- adjusted cost of capital for this project

4) An accept/reject decision based on the above 3 techniques

I am working on creating a Broadcast Receiver. I am extremely new to Android development and Java. I added my code at the bottom of this, but whenever I press the button the app crashes. I'm assuming something is wrong with connecting the broadcastIntent() function. If you could really focus on the first part that would be great!! I appreciate any help :)

Here are the directions from my professor:

1. Create an empty project
2. Create a method in MainActivity.java which creates a Broadcast.

public void broadcastIntent(View view){
       Intent intent = new Intent();
       intent.setAction("my.CUSTOM_INTENT"); sendBroadcast(intent);
   }

3. Add a button to activity_main.xml and link it to this method.
4. Is it working? How can you test it? STOP
5. Create a Broadcast Receiver (accept defaults)
6. Add the following code to your receiver in onReceive() : (remember to comment out the auto generated exception!) what’s an exception?

Toast.makeText(context, "Intent Detected.", Toast.LENGTH_LONG).show();

7. Edit your manifest by adding the following as a child node of <receiver>

<intent-filter>
    <action android:name="my.CUSTOM_INTENT"></action>
</intent-filter>

8. RUN it

MORE DIFFICULT:

1. Create a second receiver called ConnectionReciever and add the following code in onReceive():
2. ConnectivityManager cm =             (ConnectivityManager) context.getSystemService(Context.CONNECTIVITY_SERVICE);     NetworkInfo activeNetwork = cm.getActiveNetworkInfo();     boolean isConnected = activeNetwork != null &&             activeNetwork.isConnectedOrConnecting();     if (isConnected) {         try {             Toast.makeText(context, "Network is connected", Toast.LENGTH_LONG).show();         } catch (Exception e) {             e.printStackTrace();         }     } else {         Toast.makeText(context, "Network state has changed or reconnected", Toast.LENGTH_LONG).show();     } }
3. In your manifest include the following as your intent-filter as a node of the new receiver:

<intent-filter>

    <action android:name="android.net.conn.CONNECTIVITY_CHANGE" />

</intent-filter>

4. Since you are being nosey – you need to ask for user- permission. Include the following as nodes of <manifest> :

<uses-permission android:name="android.permission.INTERNET" />

<uses-permission android:name="android.permission.ACCESS_NETWORK_STATE" />

5. Test it!

MY CODE:

<MainActivity>

package com.example.ica4_broadcast;

import androidx.appcompat.app.AppCompatActivity;

import android.content.Intent;
import android.os.Bundle;
import android.view.View;
import android.widget.Button;
import android.widget.Toast;


public class MainActivity extends AppCompatActivity {
    private Button mybutton;

    @Override
    protected void onCreate(Bundle savedInstanceState) {
        super.onCreate(savedInstanceState);
        setContentView(R.layout.activity_main);
        Button mybutton = (Button) findViewById(R.id.mybutton);
    }

    private void broadcastIntent(View view) {
        Intent intent = new Intent();
        intent.setAction("my.CUSTOM_INTENT");
        sendBroadcast(intent);
        }

}

<activity_xml>

<?xml version="1.0" encoding="utf-8"?>
<androidx.constraintlayout.widget.ConstraintLayout xmlns:android="http://schemas.android.com/apk/res/android"
    xmlns:app="http://schemas.android.com/apk/res-auto"
    xmlns:tools="http://schemas.android.com/tools"
    android:layout_width="match_parent"
    android:layout_height="match_parent"
    tools:context=".MainActivity">

    <Button
        android:id="@+id/mybutton"
        android:layout_width="wrap_content"
        android:layout_height="wrap_content"
        android:layout_marginTop="235dp"
        android:layout_marginEnd="146dp"
        android:layout_marginRight="146dp"
        android:onClick="broadcastIntent"
        android:text="Button"
        app:layout_constraintEnd_toEndOf="parent"
        app:layout_constraintTop_toTopOf="parent" />

</androidx.constraintlayout.widget.ConstraintLayout>

<manifest>

<?xml version="1.0" encoding="utf-8"?>
<manifest xmlns:android="http://schemas.android.com/apk/res/android"
    package="com.example.ica4_broadcast">

    <application
        android:allowBackup="true"
        android:icon="@mipmap/ic_launcher"
        android:label="@string/app_name"
        android:roundIcon="@mipmap/ic_launcher_round"
        android:supportsRtl="true"
        android:theme="@style/Theme.ICA4Broadcast">
        <activity android:name=".MainActivity">
            <intent-filter>
                <action android:name="android.intent.action.MAIN" />
                <category android:name="android.intent.category.LAUNCHER" />
            </intent-filter>
        </activity>
        <receiver android:name=".MyReceiver" android:exported="true">
            <intent-filter>
                <action android:name="my.CUSTOM_INTENT"/>
            </intent-filter>
        </receiver>
    </application>
</manifest>

<MyReceiver>

package com.example.ica4_broadcast;

import android.content.BroadcastReceiver;
import android.content.Context;
import android.content.Intent;
import android.widget.Toast;

public class MyReceiver extends BroadcastReceiver {
    @Override
    public void onReceive(Context context, Intent intent) {
            Toast.makeText(context, "Intent Detected", Toast.LENGTH_LONG).show();

    }
}

Case Study

Over-land Trucking and Freight: Relevant Costs for Decision Making Background Over-land Trucking and Freight has a long-established and mutually beneficial business relationship with a major international automotive parts company, FHP Technologies. Management at FHP has approached Over-land with a request to provide additional routes that are important to the efficiency of its supply chain. Over-land’s management wishes to nurture the business relationship with FHP but is concerned about the available capacity to service the new routes, potential risks, and profitability associated with FHP’s request. Introduction Alan James founded Over-land Trucking and Freight in 1968 and has grown the business into a sizeable operation with 90 trucks and 180 trailers. His largest customer, FHP Technologies, has submitted a proposal to him to add delivery routes that would improve the efficiency of FHP’s supply chain. Alan was not certain that Over-land could handle the additional routes since the company currently was operating at (or near) full capacity. FHP offered a total of $2.15 per mile (including fuel service charge and miscellaneous fees) for the new route. But Alan knew that to accept the offer he would have to add more trucks and perhaps incur additional debt. The question was whether the rates offered by FHP were high enough to offset the associated risks of growing the fleet. Although the business had been grown organically through the years by reinvesting profits, it incurred debt from time to time to replace older equipment (usually in blocks of five trucks). Alan knew the slim profit margins associated with trucking, coupled with a downturn in the economy, could spell disaster if saddled with too much debt. See Exhibits 1 and 2 for the company’s most recent statement of income from operations and the balance sheet, respectively. Roger Simmons, Over-land’s operations manager for the past 16 years, had been reviewing the FHP proposal and approached Alan. “Alan, we need to discuss this offer from FHP. I think it is a great opportunity for our company, and we need to find a way to make it work.” Within 10 minutes Alan and Roger were in a closed-door meeting discussing the pros and cons of FHP’s offer. Roger began by stating the obvious: “Alan, this is a huge opportunity for us to grow the business. Not to mention, as FHP becomes more dependent on our services, we will be in a stronger position to negotiate future rate increases. I know you are opposed to debt, and I understand the risks of carrying more debt, but there is more than one way to grow our fleet. If you would consider using independent contract drivers, we could grow the fleet enough to accept FHP’s offer without incurring more debt.” Alan cringed at the thought of using independent contract drivers. Although independent contractors owned their own trucks, Alan viewed them as difficult to deal with and not worth the headache. “Roger, I hear you, but this new route will not last a week if we cannot give FHP great service. Independent contractors call the shots, not us. They own the rig and will sit at home if they want to. I would rather deal with our own company’s rigs and drivers. The rewards just do not justify the risks of damaging our relationship with FHP. “But I am not sure we should take on any more debt at this point to purchase additional rigs. The economy is in the tank, and it is a bad time for us to leverage the balance sheet any further. Roger, my success in this business was not built by jumping on every offer that came along. Sometimes you have to say no, even to your biggest customer. Unless you can find a way to squeeze out more capacity within our current fleet, I just do not think we can accept FHP’s offer at this time,” Alan concluded. As the two men left the room, Roger was convinced that Alan was wrong. Roger knew that Alan was leaving money on the table. He just needed to prepare a financial analysis that would prove it. Was it 1 possible to squeeze out more capacity from an already fully utilized fleet? Perhaps they could shift trucks from another account. Was taking on more debt truly “risky” given the profit potential of this new route? Roger knew he had to make a convincing argument before FHP took its offer to another truck line. Industry Terms • A tractor-trailer rig is a truck that consists of a tractor attached to a trailer. The tractor typically is powered by a diesel engine. • A flatbed trailer is long flat platform with no sides. • A dry van trailer is a boxed cargo compartment designed for nonrefrigerated freight. • Trucking companies often have a revenue-generating load in one direction but need a revenue-generating contract for the return trip. The return trip is known as a backhaul. Often trucking companies contract with freight brokers to acquire backhauls. Industry Background and Cost Structure Trucking firms generate a variety of revenue types from hauling goods for their clients. Presented next is a brief overview of key types of revenues included in the 2013 income from operations of Over-land Trucking and Freight. Line haul revenue is earned from hauling freight. Fuel prices in recent years have been volatile. Because trucking companies are exposed to fuel price volatility when they sign a long-term contract with their customers, they may charge an additional fee associated with fuel costs when prices exceed predetermined levels. Thus, the primary purpose of the fuel surcharge (FSC) revenue is to protect the truck line from fuel price increases during the contract term. Included in miscellaneous revenue are the following: Storage fees are collected when Over-land stores a loaded trailer on its lot for a customer. Lumper revenue is collected if a driver assists with unloading a trailer. Certain flatbed loads, such as drywall, unpainted steel, and some types of wood products, that would be damaged by rain must be covered. Trucking companies typically charge a tarping fee for such loads. Additional insurance is required when transporting high-value cargo. Practices vary throughout the industry. If a load is above a company’s standard cargo insurance limits, many companies simply will not haul it. Trucking companies that are willing to bind additional cargo coverage normally do so for a fee that covers only the extra cost of insurance. (Alternatively, this revenue line item could have been booked as a reduction to the “Insurance” expense account.) Loads transported on flatbed trailers must be secured by straps or chains. These types of loads often are associated with higher worker’s comp claims. Thus an extra strapping and chaining fee is charged only for a flatbed load. If a truck sits idle at the dock for more than two hours, customers can be charged a fee that is classified as detention revenue. Placing a detention revenue clause in the contract encourages customers to load trailers efficiently in order to avoid further constraints on Over-land’s tractor capacity. 2 Types of Business Arrangements with Drivers Over-land has potentially two arrangements with drivers. They are classified as employees or as independent operators. Employees receive traditional employee benefits and a Form W2 for tax purposes. These persons are typically engaged in work for the company that is considered “permanent.” Alternatively, independent operators are not considered employees and receive a Form 1099 (rather than a Form W2) for tax purposes. These operators typically provide the tractor but generally do not provide the trailer. In addition to driver salaries and depreciation on trucks, expenses incurred by independent contractors include: • Tags (known as International Registration Plan (IRP)) – The independent contractor buys the IRP tag for the tractor, while the shipping company buys the tags for the trailer. • IRS Form 2290 – Heavy Road Use Tax. • Diesel fuel, engine fluids, and all maintenance-related parts and items. • Physical damage insurance. • Non-trucking “bobtail” Liability Insurance (needed for when the truck is not transporting a trailer). • Tolls and scale fees. Independent contractors generally control their own working hours, unlike an employee. Further, independent contractors’ work generally is considered temporary, rather than permanent (unlike for an employee). In the trucking industry, an independent contractor often signs a one-year contract for a temporary job. But an employee is hired permanently under the assumption that he or she will make deliveries until further notice. This arrangement constitutes a permanent job. Capacity Issues and Industry Practices Over-land Trucking typically assigns one driver to one tractor. But this practice can constrain the available hours the tractor can operate. For example, laws require a driver to take a 10-hour break after 11 hours of driving. Further, a driver cannot work more than 70 hours in an eight-day period without taking a 34-hour break. To improve tractor utilization by avoiding constraints based on legal driving time requirements, some trucking companies use “slip seating.” This is a practice that permits greater tractor utilization by placing a fresh driver behind the wheel at the end of the former driver’s shift. Slip seating is similar in practice to an airline company that keeps its planes flying longer by inserting fresh flight crews as the previous crew goes off duty. It also is efficient to utilize “team drivers” that are commonly husband-wife teams. One person drives while the other sleeps. Relative to a single driver, this arrangement basically doubles the amount of miles driven in a given week. Typically, teams are paid more, but additional line haul revenues offset the extra labor costs. Another strategy to improve tractor utilization is to use trailer pools, commonly referred to as “drop and hook” systems. For example, trucking companies will leave an empty trailer with customers, who will load it with products as units are produced. When the trailer is filled, a tractor arrives, drops an empty trailer to replace the trailer just filled, then immediately hooks onto the loaded trailer and departs. Tractor utilization improves because tractors are not sitting idle while a customer loads a trailer. This approach is economically feasible because trailers are far less expensive to purchase and operate than tractors. Most trucking companies keep some tractors “on the fence” as spares, in case one breaks down. There is considerable disagreement, however, over what constitutes too many spares. Some owners believe a truck line should put all available equipment on the road and rent a tractor if a spare is needed. Others disagree 3 and maintain a small number of tractors in reserve. Currently, Over-land Trucking and Freight keeps a small number of tractors and trailers out of service but prepared for duty in case a rig breaks down. Some managers believe this policy is an expensive luxury and that some of these idle rigs could be used to add the new routes requested by FHP. When estimating a tractor’s practical capacity, management at Over-land use 85% of total potential miles driven in a period. Theoretical (or 100%) capacity utilization is virtually impossible in the industry because of factors such as traffic and loading delays. The Proposal and Related Issues Management at FHP has asked Over-land to consider adding two dry van loads per week; each load would require 1,500 round-trip miles. Because FHP is a long-term client with a strong financial position, the company’s management has asked for a very favorable rate of $2.15 per mile including FSC and all miscellaneous fees. Roger believes the potential volume of freight from FHP can be used to grow Overland’s business and profitability. There is also risk associated with not taking the new lines. If Over-land does not accept the new routes, another trucking line will, thus building loyalty with FHP. FHP is a stable, solvent company that presents no question of collection, thus ensuring a reliable cash flow. If FHP decides to restructure its supply chain in the future, Over-land could find itself in the undesirable position of holding dedicated assets (trucks and trailers) for routes that no longer exist. The owner’s aversion to increased debt levels further exacerbates concerns about acquiring additional fixed assets. Perhaps Over-land could service the initial demand with existing equipment. But, as additional routes are added in the future, Over-land must acquire more tractor-trailer rigs or consider outsourcing the miles by using independent contractors.

Questions

Over-land’s management is considering the proposal from FHP. There are many issues involving strategy,
cost, risk, and capacity. Prepare a recommendation to management. Use the following questions to guide
your analysis.

1. Assume Over-land could service the contract with existing equipment. Use Exhibit 1 to identify the
   relevant costs concerning the acceptance of FHP’s request to add two additional loads per week. Which
   costs are not relevant? Why?
2. Calculate the contribution per mile and total annual contribution associated with accepting FHP’s
   proposal. What do you recommend? (Use 52 weeks per year in your calculations.)
3. Consider the strategic implications (including risks) associated with expanding (or choosing not to
   expand) operations to meet the demands of FHP. Analyze this question from a conceptual point of view.
   Calculations are not necessary.
4. After a closer examination of capacity, management believes an additional rig is required to service the
   FHP account. Assume Over-land’s management chooses to invest in one additional truck and trailer that
   can serve the needs of FHP (at least initially). Assume the annual incremental fixed costs associated with
   acquiring the additional equipment is $50,000. Further, FHP would agree to pay $2.20 per mile (total
   including FSC and miscellaneous) if Over-land would sign a five-year contract. What is the annual
   number of miles required for Over-land to break even, assuming the company adds one truck and trailer? What is the expected annual increase in profitability from the FHP contract? (Use 52 weeks per year in
   your calculations.)
5. Over-land has business relationships with independent contractors, though Alan is reluctant to use them.
   Another possibility for expanding capacity is to outsource the miles requested by FHP. One of Overland’s
   most reliable independent contractors has quoted a rate of $1.65 per mile. As with question 4,
   assume FHP would agree to pay $2.20 per mile if Over-land would sign a five-year contract. Further,
   assume Over-land would incur incremental fixed costs of $20,000 annually. These costs would include
   insurance, rental trailers, certain permits, salaries and benefits of garage maintenance, and office salaries
   such as billing. How many annual miles are required for Over-land to break even if the miles are
   outsourced? What is the expected annual increase in profitability from the FHP contract? What are your
   conclusions?
6.     6a Why might Over-land use an independent operator if the variable cost per mile is higher than if the
       company had purchased a rig and hired a driver?

6b. At what point would management be indifferent between the scenarios illustrated in questions 4 and 5? Based on your analysis, would you recommend adding capacity by purchasing an additional rig or by utilizing the services of an independent contractor? Why?

Case Study Over-land Trucking and Freight: Relevant Costs for Decision Making Background Over-land Trucking and Freight has a long-established and mutually beneficial business relationship with a major international automotive parts company, FHP Technologies. Management at FHP has approached Over-land with a request to provide additional routes that are important to the efficiency of its supply chain. Over-land’s management wishes to nurture the business relationship with FHP but is concerned about the available capacity to service the new routes, potential risks, and profitability associated with FHP’s request. Introduction Alan James founded Over-land Trucking and Freight in 1968 and has grown the business into a sizeable operation with 90 trucks and 180 trailers. His largest customer, FHP Technologies, has submitted a proposal to him to add delivery routes that would improve the efficiency of FHP’s supply chain. Alan was not certain that Over-land could handle the additional routes since the company currently was operating at (or near) full capacity. FHP offered a total of $2.15 per mile (including fuel service charge and miscellaneous fees) for the new route. But Alan knew that to accept the offer he would have to add more trucks and perhaps incur additional debt. The question was whether the rates offered by FHP were high enough to offset the associated risks of growing the fleet. Although the business had been grown organically through the years by reinvesting profits, it incurred debt from time to time to replace older equipment (usually in blocks of five trucks). Alan knew the slim profit margins associated with trucking, coupled with a downturn in the economy, could spell disaster if saddled with too much debt. See Exhibits 1 and 2 for the company’s most recent statement of income from operations and the balance sheet, respectively. Roger Simmons, Over-land’s operations manager for the past 16 years, had been reviewing the FHP proposal and approached Alan. “Alan, we need to discuss this offer from FHP. I think it is a great opportunity for our company, and we need to find a way to make it work.” Within 10 minutes Alan and Roger were in a closed-door meeting discussing the pros and cons of FHP’s offer. Roger began by stating the obvious: “Alan, this is a huge opportunity for us to grow the business. Not to mention, as FHP becomes more dependent on our services, we will be in a stronger position to negotiate future rate increases. I know you are opposed to debt, and I understand the risks of carrying more debt, but there is more than one way to grow our fleet. If you would consider using independent contract drivers, we could grow the fleet enough to accept FHP’s offer without incurring more debt.” Alan cringed at the thought of using independent contract drivers. Although independent contractors owned their own trucks, Alan viewed them as difficult to deal with and not worth the headache. “Roger, I hear you, but this new route will not last a week if we cannot give FHP great service. Independent contractors call the shots, not us. They own the rig and will sit at home if they want to. I would rather deal with our own company’s rigs and drivers. The rewards just do not justify the risks of damaging our relationship with FHP. “But I am not sure we should take on any more debt at this point to purchase additional rigs. The economy is in the tank, and it is a bad time for us to leverage the balance sheet any further. Roger, my success in this business was not built by jumping on every offer that came along. Sometimes you have to say no, even to your biggest customer. Unless you can find a way to squeeze out more capacity within our current fleet, I just do not think we can accept FHP’s offer at this time,” Alan concluded. As the two men left the room, Roger was convinced that Alan was wrong. Roger knew that Alan was leaving money on the table. He just needed to prepare a financial analysis that would prove it. Was it 1 possible to squeeze out more capacity from an already fully utilized fleet? Perhaps they could shift trucks from another account. Was taking on more debt truly “risky” given the profit potential of this new route? Roger knew he had to make a convincing argument before FHP took its offer to another truck line. Industry Terms • A tractor-trailer rig is a truck that consists of a tractor attached to a trailer. The tractor typically is powered by a diesel engine. • A flatbed trailer is long flat platform with no sides. • A dry van trailer is a boxed cargo compartment designed for nonrefrigerated freight. • Trucking companies often have a revenue-generating load in one direction but need a revenue-generating contract for the return trip. The return trip is known as a backhaul. Often trucking companies contract with freight brokers to acquire backhauls. Industry Background and Cost Structure Trucking firms generate a variety of revenue types from hauling goods for their clients. Presented next is a brief overview of key types of revenues included in the 2013 income from operations of Over-land Trucking and Freight. Line haul revenue is earned from hauling freight. Fuel prices in recent years have been volatile. Because trucking companies are exposed to fuel price volatility when they sign a long-term contract with their customers, they may charge an additional fee associated with fuel costs when prices exceed predetermined levels. Thus, the primary purpose of the fuel surcharge (FSC) revenue is to protect the truck line from fuel price increases during the contract term. Included in miscellaneous revenue are the following: Storage fees are collected when Over-land stores a loaded trailer on its lot for a customer. Lumper revenue is collected if a driver assists with unloading a trailer. Certain flatbed loads, such as drywall, unpainted steel, and some types of wood products, that would be damaged by rain must be covered. Trucking companies typically charge a tarping fee for such loads. Additional insurance is required when transporting high-value cargo. Practices vary throughout the industry. If a load is above a company’s standard cargo insurance limits, many companies simply will not haul it. Trucking companies that are willing to bind additional cargo coverage normally do so for a fee that covers only the extra cost of insurance. (Alternatively, this revenue line item could have been booked as a reduction to the “Insurance” expense account.) Loads transported on flatbed trailers must be secured by straps or chains. These types of loads often are associated with higher worker’s comp claims. Thus an extra strapping and chaining fee is charged only for a flatbed load. If a truck sits idle at the dock for more than two hours, customers can be charged a fee that is classified as detention revenue. Placing a detention revenue clause in the contract encourages customers to load trailers efficiently in order to avoid further constraints on Over-land’s tractor capacity. 2 Types of Business Arrangements with Drivers Over-land has potentially two arrangements with drivers. They are classified as employees or as independent operators. Employees receive traditional employee benefits and a Form W2 for tax purposes. These persons are typically engaged in work for the company that is considered “permanent.” Alternatively, independent operators are not considered employees and receive a Form 1099 (rather than a Form W2) for tax purposes. These operators typically provide the tractor but generally do not provide the trailer. In addition to driver salaries and depreciation on trucks, expenses incurred by independent contractors include: • Tags (known as International Registration Plan (IRP)) – The independent contractor buys the IRP tag for the tractor, while the shipping company buys the tags for the trailer. • IRS Form 2290 – Heavy Road Use Tax. • Diesel fuel, engine fluids, and all maintenance-related parts and items. • Physical damage insurance. • Non-trucking “bobtail” Liability Insurance (needed for when the truck is not transporting a trailer). • Tolls and scale fees. Independent contractors generally control their own working hours, unlike an employee. Further, independent contractors’ work generally is considered temporary, rather than permanent (unlike for an employee). In the trucking industry, an independent contractor often signs a one-year contract for a temporary job. But an employee is hired permanently under the assumption that he or she will make deliveries until further notice. This arrangement constitutes a permanent job. Capacity Issues and Industry Practices Over-land Trucking typically assigns one driver to one tractor. But this practice can constrain the available hours the tractor can operate. For example, laws require a driver to take a 10-hour break after 11 hours of driving. Further, a driver cannot work more than 70 hours in an eight-day period without taking a 34-hour break. To improve tractor utilization by avoiding constraints based on legal driving time requirements, some trucking companies use “slip seating.” This is a practice that permits greater tractor utilization by placing a fresh driver behind the wheel at the end of the former driver’s shift. Slip seating is similar in practice to an airline company that keeps its planes flying longer by inserting fresh flight crews as the previous crew goes off duty. It also is efficient to utilize “team drivers” that are commonly husband-wife teams. One person drives while the other sleeps. Relative to a single driver, this arrangement basically doubles the amount of miles driven in a given week. Typically, teams are paid more, but additional line haul revenues offset the extra labor costs. Another strategy to improve tractor utilization is to use trailer pools, commonly referred to as “drop and hook” systems. For example, trucking companies will leave an empty trailer with customers, who will load it with products as units are produced. When the trailer is filled, a tractor arrives, drops an empty trailer to replace the trailer just filled, then immediately hooks onto the loaded trailer and departs. Tractor utilization improves because tractors are not sitting idle while a customer loads a trailer. This approach is economically feasible because trailers are far less expensive to purchase and operate than tractors. Most trucking companies keep some tractors “on the fence” as spares, in case one breaks down. There is considerable disagreement, however, over what constitutes too many spares. Some owners believe a truck line should put all available equipment on the road and rent a tractor if a spare is needed. Others disagree 3 and maintain a small number of tractors in reserve. Currently, Over-land Trucking and Freight keeps a small number of tractors and trailers out of service but prepared for duty in case a rig breaks down. Some managers believe this policy is an expensive luxury and that some of these idle rigs could be used to add the new routes requested by FHP. When estimating a tractor’s practical capacity, management at Over-land use 85% of total potential miles driven in a period. Theoretical (or 100%) capacity utilization is virtually impossible in the industry because of factors such as traffic and loading delays. The Proposal and Related Issues Management at FHP has asked Over-land to consider adding two dry van loads per week; each load would require 1,500 round-trip miles. Because FHP is a long-term client with a strong financial position, the company’s management has asked for a very favorable rate of $2.15 per mile including FSC and all miscellaneous fees. Roger believes the potential volume of freight from FHP can be used to grow Overland’s business and profitability. There is also risk associated with not taking the new lines. If Over-land does not accept the new routes, another trucking line will, thus building loyalty with FHP. FHP is a stable, solvent company that presents no question of collection, thus ensuring a reliable cash flow. If FHP decides to restructure its supply chain in the future, Over-land could find itself in the undesirable position of holding dedicated assets (trucks and trailers) for routes that no longer exist. The owner’s aversion to increased debt levels further exacerbates concerns about acquiring additional fixed assets. Perhaps Over-land could service the initial demand with existing equipment. But, as additional routes are added in the future, Over-land must acquire more tractor-trailer rigs or consider outsourcing the miles by using independent contractors. Questions Over-land’s management is considering the proposal from FHP. There are many issues involving strategy, cost, risk, and capacity. Prepare a recommendation to management. Use the following questions to guide your analysis. Assume Over-land could service the contract with existing equipment. Use Exhibit 1 to identify the relevant costs concerning the acceptance of FHP’s request to add two additional loads per week. Which costs are not relevant? Why? Calculate the contribution per mile and total annual contribution associated with accepting FHP’s proposal. What do you recommend? (Use 52 weeks per year in your calculations.) Consider the strategic implications (including risks) associated with expanding (or choosing not to expand) operations to meet the demands of FHP. Analyze this question from a conceptual point of view. Calculations are not necessary. After a closer examination of capacity, management believes an additional rig is required to service the FHP account. Assume Over-land’s management chooses to invest in one additional truck and trailer that can serve the needs of FHP (at least initially). Assume the annual incremental fixed costs associated with acquiring the additional equipment is $50,000. Further, FHP would agree to pay $2.20 per mile (total including FSC and miscellaneous) if Over-land would sign a five-year contract. What is the annual number of miles required for Over-land to break even, assuming the company adds one truck and trailer? What is the expected annual increase in profitability from the FHP contract? (Use 52 weeks per year in your calculations.) Over-land has business relationships with independent contractors, though Alan is reluctant to use them. Another possibility for expanding capacity is to outsource the miles requested by FHP. One of Overland’s most reliable independent contractors has quoted a rate of $1.65 per mile. As with question 4, assume FHP would agree to pay $2.20 per mile if Over-land would sign a five-year contract. Further, assume Over-land would incur incremental fixed costs of $20,000 annually. These costs would include insurance, rental trailers, certain permits, salaries and benefits of garage maintenance, and office salaries such as billing. How many annual miles are required for Over-land to break even if the miles are outsourced? What is the expected annual increase in profitability from the FHP contract? What are your conclusions? 6a Why might Over-land use an independent operator if the variable cost per mile is higher than if the company had purchased a rig and hired a driver? 6b. At what point would management be indifferent between the scenarios illustrated in questions 4 and 5? Based on your analysis, would you recommend adding capacity by purchasing an additional rig or by utilizing the services of an independent contractor? Why?

A regional airline transfers passengers from small airports to a larger regional hub airport. The airline data analyst was assigned to estimate the revenue ( in thousands of dollars) generated by each of the 22 small airports based on two variables: the distance from each airport ( in miles) to the hub and the population ( in hundreds) of the cities in which each of the 22 airports is located. The data is given in the following table.

Airport revenue         distance         population

1          233                 233                 56

2          272                 209                 74

3          253                 206                 74

4          296                 232                 78

5          268                 125                 73

6          296                 245                 54

7          276                 213                 100

8          235                 134                 98

9          253                 140                 95       

10        233                 165                 81

11        240                 234                 52

12        267                 205                 96

13        338                 214                 96       

14        243                 183                 73

15        252                 230                 55

16        269                 238                 91

17        242                 144                 64

18        233                 220                 60

19        234                 170                 60

20        450                 170                 240    

21        340                 290                 70

22        200                 340                 75                   

1. Using PROC CORR in SAS, create a matrix of scatter plots for revenue, population, and distance. Include this graph in your LATEX document.
2. From your scatter plots in part (a), is there a data point that you think may be an “issue” for analysis?
   
3. Construct and report a multiple regression model relating :
             revenue (y)
            distance (x1)
            population (x2)
             using SAS.
   
4. Construct the 95% confidence interval for β1 by hand. (Use βˆ1 and the standard error calculated by SAS.)

a) The point at which a company's costs equal its revenues is the break-even point. C represents the cost, in dollars, of x units of a product and R represents the revenue, in dollars, from the sale of x units. Find the number of units that must be produced and sold in order to break even. That is, find the value of x for which C=R.

C=15x+32,000 and R=17x.

How many units must be produced and sold in order to break even?

b) A bicycle travels at a speed of 55 miles per hour for x hours. Find an expression for the distance that the bicycle travels.

c) The price per unit, p, and the demand, x, for a particular material is related by the linear equation p =140 -7/8 X, while the supply is given by the linear equation

p=7/8x. At what value of p does supply equal demand?

d) Suppose that a cyclist began a 476 mi ride across a state at the western edge of the state, at the same time that a car traveling toward it leaves the eastern end of the state. If the bicycle and car met after

8.5 hr and the car traveled 32.2 mph faster than the bicycle, find the average rate of each.

The car's average rate is

The bicycle's average rate is

e) A baseball team has home games on Thursday and Saturday. The two games together earn $4640.00 for the team. Thursday 's game generates$300.00 less than Saturday 's

game. How much money was taken in at each game? How much money did Thursday 's game generate? How much money did Saturday 's game generate?

Bill has just returned from a duck hunting trip. He brought home eight ducks. Bill’s friend, John, disapproves of duck hunting, and to discourage Bill from further hunting, John presented him with the following cost estimate per duck: Camper and equipment: Cost, $15,000; usable for eight seasons; 12 hunting trips per season $ 156 Travel expense (pickup truck): 100 miles at $0.39 per mile (gas, oil, and tires—$0.28 per mile; depreciation and insurance—$0.11 per mile) 39 Shotgun shells (two boxes per hunting trip) 25 Boat: Cost, $2,080, usable for eight seasons; 12 hunting trips per season 22 Hunting license: Cost, $80 for the season; 12 hunting trips per season 7 Money lost playing poker: Loss, $36 (Bill plays poker every weekend whether he goes hunting or stays at home) 36 Bottle of whiskey: Cost, $25 per hunting trip (used to ward off the cold) 25 Total cost $ 310 Cost per duck ($310 ÷ 8 ducks) $ 39 Required: 1. Assuming the duck hunting trip Bill has just completed is typical, what costs are relevant to a decision as to whether Bill should go duck hunting again this season? 2. Suppose Bill gets lucky on his next hunting trip and shoots 12 ducks using the same amount of shotgun shells he used on his previous hunting trip to bag 8 ducks. How much would it have cost him to shoot the last two ducks?

A real estate investor wants to study the relationship between annual return on his commer- cial retail shops (measured in thousands of dollars) as it relates to their location and the number of homes near the shops. Specifically, the investor has collected data on the annual return of the shops, the number of households within 15 miles of the shops (measured in thousands), and the location of the shops (whether the shops are in a suburban area, near a shopping mall, or downtown). The annual return data can be found in the file “RealEstate.csv” in the d2l. As demonstrated in the lecture, please create a subset data of size 18 and perform your statistical analysis for the subset data. Please note that the subset data should be a random sample of the given data.

(a) State the mean of the response.
(b) Is the multiple linear regression model useful for prediction? Show details. Use ? = 0.05. (c) Provide the detailed interpretations of b1, b2, and b3 in the context of the problem.

(d) Use your estimated regression equation to predict the annual return for a shop in mall with 120,000 households near the shop.

Shop. Annual Return($1000s). Number of Households(1000s). Location.
3 245.81   232   Mall
4   137.07   108   Mall
5   207.36   220   Suburban
6   146.12   150   Suburban
8   188.19   198   Suburban
9   152.23   149   Downtown
10   182.23   192   Suburban
11   198.88   179   Mall
13   156.22   130   Mall
15   195.62   199   Downtown
16   210.38   224   Suburban
17   209.16   215   Downtown
18   260.82   250   Mall
20   127.66   129   Suburban
22   219.93   203   Mall
23   166.61   166   Downtown
27   219.67   227   Downtown
29   232.32   217   Mall