THE BOLDED LETTER AND NUMBER IS THE GIVEN ANSWER. ONE OF THE BOLDED ANSWERS ARE INCORRECT, WHICH ONE IS INCORRECT AND WHAT IS THE CORRECT ANSWER?

Your company manufactures hot water heaters. The life spans of your product are known to be normally distributed with a mean of 13 years and a standard deviation of 1.5 years. You want to set the warranty on your product so that you do not have to replace more than 5% of the hot water heaters that you sell. How many years should you claim on your warranty?

In a highway construction zone with a posted speed limit of 40 miles per hour, the speeds of all vehicles are normally distributed with a mean of 46 mph and a standard deviation of 3 mph. Find the probability that the speed of a random car traveling through this construction zone is more than 45 mph.

The delivery times for all food orders at a fast-food restaurant during the lunch hour are normally distributed with a mean of 6.7 minutes and a standard deviation of 2.1 minutes. Find the probability that the delivery time for a random order at this restaurant is between 7 and 8 minutes.

The average number of pounds of red meat a person consumes each year is 196 with a standard deviation of 22 pounds (Source: American Dietetic Association). This distribution is approximately bell-shaped and symmetric. If an individual is randomly selected, find the probability that the number of pounds of red meat they consume each year will be less than 200 pounds.

The pucks used by the National Hockey League for ice hockey must weigh between 5.5 and 6.0 ounces. Suppose the weights of pucks produced at a factory are normally distributed with a mean of 5.75 ounces and a standard deviation of 0.11 ounces. What percentage of pucks produced at this factory cannot be used by the National Hockey League?

1. The distribution of scores on a statistics final exam is approximately normal with a mean of 62 and a standard deviation 11. Find the z-score for a score of 77 on the statistics final exam.

Why do I keep getting the error "More columns than column names" when trying to import the following data into R Studio?:

PRICE   YEARSOLD   MILES   COLOR   TITLESTATUS   TRANSMISSION  
4500   11   170000   SILVER   CLEAN   MANUAL          
34590   1   2000   SILVER   CLEAN   AUTOMATIC  
4500   14   203000   SILVER   CLEAN   AUTOMATIC  
11990   6   53337   GRAY   CLEAN   AUTOMATIC  
10490   8   36543   RED   CLEAN   AUTOMATIC  
2800   19   208000   SILVER   CLEAN   MANUAL      
1200   19   244000   SILVER   CLEAN   AUTOMATIC  
2500   19   208000   BROWN   CLEAN   AUTOMATIC  
2000   15   190000   GREEN   CLEAN   AUTOMATIC  
39990   3   31252   RED   CLEAN   AUTOMATIC  
16590   3   31644   BLUE   CLEAN   AUTOMATIC  
9300   2   65000   WHITE   SALVAGE   AUTOMATIC  
1800   17   190000   BLACK   CLEAN   AUTOMATIC  
16900   49   27000   GREEN   CLEAN   MANUAL  
14900   62   1000   GREEN   CLEAN   MANUAL  
16900   38   91000   BROWN   CLEAN   MANUAL  
15900   40   106229   SILVER   CLEAN   AUTOMATIC  
15900   46   20000   GRAY   CLEAN   MANUAL  
29900   19   47000   WHITE   CLEAN   MANUAL  
9900   59   4200   GREEN   CLEAN   MANUAL  
14900   13   98843   BLACK   CLEAN   AUTOMATIC  
13900   44   82000   GREEN   CLEAN   MANUAL  
32900   29   134800   WHITE   CLEAN   MANUAL  
21721   7   100071   BLACK   CLEAN   AUTOMATIC  
19900   54   5000   BLUE   CLEAN   AUTOMATIC  
18900   44   78149   BROWN   CLEAN   MANUAL  
35900   26   105000   GRAY   CLEAN   MANUAL  
34162   2   26649   SILVER   CLEAN   AUTOMATIC  
12967   3   20083   WHITE   CLEAN   AUTOMATIC  
29900   26   134000   WHITE   CLEAN   MANUAL  
11900   68   33000   GREEN   CLEAN   MANUAL  
19174   2   21780   SILVER   CLEAN   AUTOMATIC  
16429   3   25690   BLACK   CLEAN   AUTOMATIC  
53095   2   25320   WHITE   CLEAN   AUTOMATIC  
27900   33   67000   BLUE   CLEAN   MANUAL  
16401   1   32756   BLACK   CLEAN   AUTOMATIC  
16900   40   30000   SILVER   CLEAN   MANUAL  
10179   5   56000   ORANGE   CLEAN   AUTOMATIC  
34900   42   5000   BLUE   CLEAN   MANUAL
51900   57   100   BURGUNDY   CLEAN   MANUAL
  

13–1. Conditions of Performance. The Caplans contract with Faithful Construction, Inc., to build a house for them for $360,000. The specifications state “all plumbing bowls and fixtures... to be Crane brand.” The Caplans leave on vacation, and during their absence, Faithful is unable to buy and install Crane plumbing fixtures. Instead, Faithful installs Kohler brand fixtures, an equivalent in the industry. On completion of the building contract, the Caplans inspect the work, discover the substitution, and refuse to accept the house, claiming Faithful has breached the conditions set forth in the specifications. Discuss fully the Caplans’ claim.

13–8. Reformation. Dr. John Holm signed a two-year employment agreement with Gateway Anesthesia Associates, PLLC. During negotiations for the agreement, Gateway’s president, Dr. Jon Nottingham, told Holm that on completion of the contract he would become a partner in the firm and that during the term he would be paid “like a partner.” The written agreement did not reflect this promise—the contract read that Holm would be paid based on “net collections” for his services and did not state that he would become a partner. Later, Gateway told Holm that it did not intend to make him a partner. Holm filed a complaint in an Arizona state court against Gateway, alleging breach. Before the trial, Holm filed a motion to reform the contract to express what he had been told. Nottingham did not dispute Holm’s account. What is the basis for the reformation of a contract? Is it appropriate in this case? Why or why not?

14–4. Express Warranties. Charity Bell bought a used Toyota Avalon from Awny Gobran of Gobran Auto Sales, Inc. The odometer showed that the car had been driven 147,000 miles. Bell asked whether it had been in any accidents. Gobran replied that it was in good condition. The parties signed a warranty disclaimer that the vehicle was sold “as is.” Problems with the car arose the same day as the purchase. Gobran made a few ineffectual attempts to repair it before refusing to do more. Meanwhile, Bell obtained a vehicle history report from Carfax, which showed that the Avalon had been damaged in an accident and that its last reported odometer reading was that the odometer reading could be false and that the car might have been in an accident? Can Gobran avoid any liability that might otherwise be imposed because Bell did not obtain the Carfax report until after she bought the car? Discuss.

Required information

[The following information applies to the questions displayed below.]

Susan Lopez, a consultant with Deloitte & Young, has just begun an engagement at Four Corners Airlines, which is based in Santa Fe, New Mexico. The company has fallen on hard times of late despite record profits for the rest of the airline industry. Management is somewhat set in its ways and could probably use some “new blood,” as the most recent hire to the firm’s executive team was 12 years ago.

In Lopez’s first meeting with the team, the airline’s chief executive officer commented that “all that mattered in this industry were load factors—the percentage of seats sold on scheduled flights. If load factors were adequate, everything else would take care of itself.” Lopez noted that while this measure was important, other, broader facets of operation were significant as well. She asked if any of the management team had heard of the balanced scorecard, and received dead silence as a response.

Based on her experiences with other engagements, including two that involved airlines, Lopez was convinced that the balanced scorecard could provide benefits in helping to solve the airline’s woes. After a presentation about the philosophy of the balanced scorecard, Four Corners Airlines’ management team accepted her idea, feeling that a shift in operating philosophy was needed for survival.

3. Identify the type of measure used to evaluate the key elements below. (Hint: There are 6 financial measurements, 6 customer-satisfaction measures, 8 internal business process measures, and 5 Learning and growth measures.)

table

Aircraft turnaround time between flights

Average age of aircraft in fleet

Average trip length (in miles)

Average wait time when calling reservations center

Cost per meal served

Earnings per share

Employee satisfaction scores

Employee training programs

Employee turnover

Enhancements to product line (new class of service)

Load factors

Market shareNet income

New unique features of frequent-flier club

Number of aircraft in fleet

Number of bags lostNumber of cities/new cities served

Number of passenger complaints

Operating expenses per seat mile

Passenger revenue per seat mile

Percentage of on-time arrivals

Percentage of on-time departures

Percentage of tickets sold through travel agents, reservation agents, and the Internet

Response time for resolving customer problems

Revenue growth

Personal Skill Builder 5-3: Dealing with People Who Make Your Life Difficult: Roary—the Exploder!

1. Read the following statement from B. J. Karim, an employee at Poore Brothers, a plumbing supply and distribution company:

I have a boss, Ralph Poore, who is the consummate Dr. Jekyll and Mr. Hyde. On some days, Poore can be the nicest and kindest person, but on others—that’s another story. Behind his back, we call him Roary because when he’s angry, he speaks at such a loud volume that anyone within miles can hear him. He shows his impatience and displeasure by exploding at the drop of a hat. He has meetings where, if someone disagrees with him or delivers bad news about what is happening at the company, he will pound his hands on the table and yell at the top of his lungs. More than once, Poore has ended the meeting with one of these tirades, either by kicking everyone else out or by leaving.

Once, Roary went into one of the salespeople’s offices to ask if he had called on a contractor as asked. When the salesperson answered that the person was not there when he called but that he had sent a fax and a copy of some new fixtures the company had just gotten in, Poore stormed out of the office, shouting obscenities.

When Poore hears bad news, it doesn’t matter whose fault it is—he blows up at whoever is there. Another time, Poore was speaking to another of my co-workers about a delivery she needed to arrange. She told Poore that Crane’s manufacturing facility was about three months behind in its production runs. We couldn’t deliver the product because Crane hadn’t produced it. Poore picked up a flower vase and threw it across the room.

Poore is always right—in his mind. If anyone disagrees with him or tells him something he doesn’t want to hear, he throws a tantrum. This man is a time bomb waiting for something to set him off. I haven’t felt his wrath, but it’s only a matter of time.

Analyze Roary’s leadership style. When might this style be appropriate? What might be some disadvantages of this style?

Based on your findings, what suggestions would you make to Karim on how to cope with Roary?

Is Copper completely obsolete?

Here is a direct quote from “Why such slow Wi-Fi?” in a recent Los Angeles Times article:

“In an analysis of fixed broadband and mobile speeds in July, Speedtest ranked the United State No. 9 for broadband and No. 46 for mobile (Nos.1, respectively, Singapore and Norway. Last: Venezuela and Iraq). Part of the issue for Americans: Many of us still have home service based on copper wire, not fiber.
Craig Ganssle, chief executive of Camp3, which works on wireless infrastructures, explains this difference: Copper service is based on the speed of sound (generally about 1,125 feet per second if it’s 68 degrees and the air is dry), and fiber is based on the speed of light (about 984 million feet per second).”

With a few exceptions, most of us get our home Internet access through a cable modem and the wires that connect our modems to our ISPs are made of copper. Let’s assume you are streaming a Netflix movie. The nearest Open Connect appliance, which Netflix uses to host and deliver movies to customers (see Chapter 11, pg. 360), is 3 miles from your home. Let’s also assume you have already found the movie to watch and is ready to start. You click on the Play button, a one-bit signal is sent over the 3-mile copper wire to reach the Open Connect appliance, which then starts sending the digitized movie frames back to your home, also over the 3-mile copper wire.

Questions:
a. Given the quoted speeds above (i.e., 1,125 feet per second vs. 984 million feet per second), from the moment you click the Play button, to the moment the first frame of the movie appears on your screen, how long will it take (round-trip time) over a copper wire? Over a fiber optic cable?
Note: 1 mile = 5,280 feet
Round-trip time = (Distance / Speed) × 2

b. How does your calculated result over a copper wire compare to your own experience of streaming movies on the Internet, excluding any buffering time? Do you see any problem with what the expert in the article above was saying? Hint: this expert did not get some basic facts of physics right.

GRAMMAR: Subject-Verb Agreement in the Simple Present

INSTRUCTIONS: Complete each sentence with the correct verb.

11. Everyone who ________________ (attend / attends) the concert will receive a t-shirt and poster.

12. The U.S. Olympic ice hockey team ________________ (practice / practices) in Colorado.

13. All the drinking water in New York City ________________ (come / comes) from the mountains more than a hundred miles away.

14. One of the most obvious causes of car accidents ________________ (is / are) drivers who use their phones while driving.

15. Living in a big city ________________ (cost / costs) more money than living in a small town.

GRAMMAR: Word Forms

INSTRUCTIONS: Complete each sentence with the correct word form.

16. Scientists were quick to understand the ________________ (important / importance) of the new discovery.

17. Choosing a major in college can be a difficult ________________ (decide / decision) to make.

18. Effective teachers plan ________________ (creative / creatively) lessons for their students.

19. Stress can have a negative effect on a person’s ________________ (mental / mentally) health.

20. The ________________ (recommend / recommendation) of some experts is to avoid checking email throughout the day.

INSTRUCTIONS: Choose the correct word to complete each sentence.

____ 21. A(n) ________________ advantage of this program is that it can be used on mobile devices.

a. doubtful b. additional c. abandoned

____ 22. Although a university degree cannot ________________ a great job, graduates do tend to receive higher salaries than those without a degree.

a. be related to b. shrink c. guarantee

____ 23. Races that are 10,000 kilometers or longer test the ________________ of the athletes.

a. impact b. strategy c. endurance

____ 24. Sitting still for long periods of time can be a ________________ challenging task for young learners.

a. dilemma b. mentally c. particularly

INSTRUCTIONS: Choose the correct word form to complete each sentence.

25. Families often build an ________________ (addition / add / additional / additionally) to their house as they have more children and need more space.

26. Modern medicine has made it unnecessary for people to ________________ (endure / endurance / enduring) the terrible pain that often accompanies diseases such as cancer.

27. When learning a new language, it is best to ________________ (interaction / interact / interactive / interactively) with native speakers as often as possible.

28. Strong ________________ (motivation / motivate / motivational) can be a powerful tool in reaching one’s goals.

29. The sales department’s ________________ (strategy / strategize / strategic / strategically) for increasing sales has been extremely successful.

Cutting Speed (meters per minute) Useful Life Brand A (Hours) Useful Life Brand B (Hours)

30 5.2 6.3

30 4.4 6.4

30 5.2 5.2

40 4.5 6.0

40 3.7 4.6

40 2.5 5.0

50 4.4 4.5

50 2.8 4.0

50 1.0 3.7

60 4.0 3.8

60 2.0 3.0

60 1.1 2.4

70 1.1 1.5

70 0.5 2.0

70 3.0 1.0

.

Use a 95​% confidence interval to estimate the mean useful life of a brand A cutting tool when the cutting speed is 45 meters per minute. Repeat for brand B. Compare the widths of the two intervals and comment on the reasons for any difference.

The mean useful life of a brand A cutting tool when the cutting speed is ___ to ____ hours. (Round to one decimal place as​ needed.)

The mean useful life of a brand B cutting tool when the cutting speed is ___ to ____ hours. (Round to one decimal place as​ needed.)

Compare the widths of the two intervals and comment on the reasons for any difference. Choose the correct answer below.

A. Brand A is wider than brand B. The estimated standard error of y^ is different for the two intervals.

B. Brand B is wider than brand A. The value of t α/2 is different for the two intervals.

C. Brand A is wider than brand B. The calue of y^ is different for the two intervals.

D. There is no difference in the widths of the two intervals.

b. Use a 95% prediction interval to predict the useful life of a brand A cutting tool when the cutting speed is 45 meters per minute. Repeat for brand B. Compare the widths of the two intervals to each other and to the two intervals you calculated in part a. Comment on the reasons for any difference.

The predicted useful life of a brand A cutting tool when the speed is 45 meters per minute is ___ to ____ hours. (Round to one decimal place as​ needed.)

The predicted useful life of a brand B cutting tool when the speed is 45 meters per minute ___ to ____ hours. (Round to one decimal place as​ needed.)

Compare the widths of the two intervals to each other. Choose the correct answer below.

A.The prediction interval for brand A is larger than the prediction interval for brand B because the estimated standard error of y^ is different for the two intervals.

B.The prediction interval for brand B is larger than the prediction interval for brand A because the value of  y^ is different for the two intervals.

C.The prediction intervals are the same size.

Compare the widths of the two prediction intervals to the two confidence intervals you calculated in part a.

Choose the correct answer below.

A.The prediction intervals are both larger than the corresponding confidence intervals.

B.The prediction intervals are both smaller than the corresponding confidence intervals.

C.The two prediction intervals are the same size as the corresponding confidence intervals.

D.There is no difference in the widths of the four intervals.

Comment on the reasons for any difference. Choose the correct answer below.

A. The value of t α/2 for the estimated mean value of y is smaller than the value of t α/2 for the predicted value of y.

B. The standard error for the estimated mean value of y is smaller than the standard error for the predicted value of y.

C. The standard error for the estimated mean value of y is larger than the standard error for the predicted value of y.

D. The value of t α/2 for the estimated mean value of y is larger than the value of t α/2 for the predicted value of y.

c. Suppose you were asked to predict the useful life of a brand A cutting tool for a cutting speed of x=100 meters per minute. Because the given value of x is outside the range of the sample​ x-values, the prediction is an example of extrapolation. Predict the useful life of a brand A cutting tool that is operated at 100 meters per minute and construct a 95​% prediction interval for the actual useful life of the tool. What additional assumption do you have to make in order to ensure the validity of an​ extrapolation?

The predicted useful life of a brand A cutting tool that is operated at 100 meters per minute is _____ hours. ​(Round to two decimal places as​ needed.)

The actual predicted useful life of a brand A cutting tool when the speed is 100 meters per minute is ______ to ____ hours. (Round to one decimal place as​ needed.)

What additional assumption do you have to make in order to ensure the validity of an​ extrapolation?

A.The linear regression is an accurate model when x=100.

B.The value of t α/2 can be found for x=100.

C.There is no additional assumption required.

1. A star is being observed with an 8 bit CCD has a central pixel value of 82 counts when the exposure time is 10 seconds. What would the central pixel value be if the exposure time were 25 seconds? Explain your reasoning.

   		The central pixel value would be about 82 counts since the detector is linear.
   		The central pixel value would be about 205 counts since the detector is linear.
   		The central pixel value would be about 305 counts since the detector is linear.
   		The central pixel value would be about 159 counts since the detector is linear.

2. A 12-bit CCD collects light from a star over a 10 second exposure and obtains a central pixel value of 1068. What is the longest exposure that could be taken of this star and still avoid saturation? Explain your reasoning.

   		A. The longest exposure is about 39 seconds since the detector is linear and will saturate at 4095 counts.
   		B. The longest exposure is about 38 seconds since the detector is linear and will saturate at 4095 counts.
   		C. The longest exposure is about 40 seconds since the detector is linear and will saturate at 4095 counts.
   		D. The longest exposure is about 37 seconds since the detector is linear and will saturate at 4095 counts.

3. Choose the table which most closely agrees with your answer for the followig question:

   Enter the offsets you obtained for starfield 2 and starfield 3 in the table below.

   		X Offset Y Offset Starfield 2 -35 29 Starfield 3 -14 -20
   		X Offset Y Offset Starfield 2 -35 37 Starfield 3 -14 -20
   		X Offset Y Offset Starfield 2 -14 -20 Starfield 3 -34 30
   		X Offset Y Offset Starfield 2 -35 29 Starfield 3 -18 -15

4. Choose the table below which most closely agrees with your answer for Question 7 of the lab.

   The starfields of the blink comparator contain 5 variable stars. Create different blinking sequences in the simulator to identify the variables and record the x and y locations of the variables on this starfield. One variable star has already been located for you. Note that the coordinates do not need to be exact, you just need to be able to find the stars again in the next simulator

   		X coordinate Y coordinate Variable #1 64 114 Variable #2 24 260 Variable #3 131 201 Variable #4 309 177 Variable #5 331 22
   		X coordinate Y coordinate Variable #1 64 114 Variable #2 124 260 Variable #3 131 201 Variable #4 309 177 Variable #5 331 22
   		X coordinate Y coordinate Variable #1 64 114 Variable #2 124 260 Variable #3 131 201 Variable #4 309 177 Variable #5 350 122

5. Decide if the following answer is true or false for the question:

   Hypothetically, suppose that you add a long series of observations all taken one day apart to the blinking queue. Would you be able to detect large amplitude variable stars with periods of a) 1.0 days, b) 0.5 days, or c) 0.75 days?

   Answer:

   If the observations are taken 1 day apart then you will not see large amplitude variable stars with periods of 1.0 day or 0.5 days because after one day both types of stars will be in the same phase on each day of observation.

   If the star has a period of 0.75 days then the phase will not be the same after one day. A period of 0.75 days is 18 hours. Suppose on the first day the phase of the star is 0. After 18 hours the phase will again be 0 so after 6 more hours the phase will now be 0.33 or 6/18 = 1/3 of a cycle.   On day 2 we have: after another 18 hours the phase will again be 0.33 so after another 6 hours the phase will advance another 1/3 cycle so the phase is 0.67. On day 3 the phase will be back to 0.

   Another way of looking at this is to consider when the phase will be 0; it will be zero after 18 hours, 36 hours, 54 hours and 72 hours, So if we observer each 24 hours then the phase will not be zero again during our observation until after three days.

   True

   False

6. What is the range of pixel values inside the inner circle for this star? (Find the maximum and minimum values.

   		Pixel Values Minimum 1633 Maximum 31495
   		Pixel Values Minimum 16330 Maximum 31495
   		Pixel Values Minimum 16330 Maximum 17865

The Vita Plastics Assembly Company (VPAC), which has its headquarters in St Louis, Missouri, is considering opening a manufacturing plant in an overseas country and transferring much of its current US-based production to the new plant. After extensive data collection and visits by managers to a number of possible countries Almeria has been identified as the most promising country for a new plant. A site near the capital, Lasia, appears to be highly suitable and a new state-of-the art manufacturing facility could be constructed there very quickly.

The decision on whether to go ahead with the move to Almeria will be based on the level of monetary savings in production costs that it is hoped would be generated over the next 10 years by opening a plant there. However, there are a number of risks associated with these savings and, for simplicity, the level of savings has categorized as either high, medium or low. If a move to Almeria does go ahead, VPAC will review the success of its investment after the first five years and will have the option of withdrawing from that country and returning operations to the USA if this appears to be appropriate.

Almeria has a relatively new democracy which was created following the overthrow of a military dictatorship that had ruled the country for nearly thirty years. However, there is considerable poverty and unemployment rates have recently been as high as 38%. The current government is therefore keen to attract foreign investors, but it only has a narrow majority in the country’s parliament. Despite the efforts of the government widespread corruption has persisted and Almeria is ranked 5th in the World league table of corruption. Corruption is partly responsible for the neglect of the country’s road and rail systems which are now amongst the worst in the region.

If a decision is made to relocate to Almeria there is a risk that a new government will come into power and nationalize all foreign investments. There is thought to be only a 0.05 probability of this happening during the first five years, but if it did occur, the loss of assets would cause VPAC to be worse off by $75 million (in present value

terms) compared to the returns that would have been generated by continuing manufacturing in the US. Nationalization would also cause VPAC’s association with the country to end immediately. There is also an estimated 0.3 probability that within the next five years, restrictions will be imposed by the government on the convertibility of local currency into foreign currency.                                  This would reduce savings by an estimated $43 million (nationalization and currency restrictions can be assumed to be mutually exclusive events).

Insurance can be purchased to cover both of these political risks for the first five years of operations by paying a total premium which has a present value of $16 million. (Note that the insurance can only be purchased at the start of the five years).If the company does purchase political risk insurance and nationalization occurs in the first five years then the insurance will only cover the loss of assets. It is expected that any savings generated before nationalization would be canceled out by the costs of relocation and so would have present value of $0. If nationalization does not take place it is thought that there is a 0.6 probability that in the first five years the investment would generate high savings having an estimated present value of $85 million. There is also an estimated 0.25 probability that medium savings, with a present value $48 million, would be earned in the first five years and a 0.15 probability these savings will be low and only amount to $5 million. If no political insurance has been purchased currency restrictions would reduce these savings by the estimated amount given above

At the end of the first five years the company would have to decide whether to continue to operate the plant in Almeria for another five years or whether to transfer operations back to the US. However, this decision will only be considered if the savings in the first five years have been low. If a decision to withdraw is made then the plant will be sold for a return with an estimated present value of £10 million. If VPAC decide to continue operations in Almeria for a further five years the risk of nationalization during this period is difficult to estimate but is thought to be between

0.1 and 0.2. However, the risk of restrictions on the convertibility of local currency is estimated to be the same as that in the first five years. The total insurance premium

to cover these risks for the second five years would have a present value of $12.8 million. If insurance is purchased and nationalization occurs in the second five years then it is the assumed that gross savings made before nationalization will again be cancelled out by the costs arising from the disruption. For simplicity, the present values of other costs and savings occurring under each set of conditions in the second five years are assumed to be the same as those in the first 5 years, with a 20% reduction to take into account the time value of money. However, it is thought that the probabilities of high, medium and low returns in the second five year period will be dependent on the level of returns achieved in the first five years as shown in the table below.

Second five years

For example, the table shows, that if savings in the first five years have been high then there is a 0.60 probability that high savings will be maintained in the next five years, a 0.3 probability that only medium savings will be generated and a 0.10 probability that savings will be low. The other two rows can be interpreted in a similar manner. It can be assumed that, if the company stays in Almeria, for ten years it will sell the plant at the end of this period and hence generate extra returns with a present value of £6 million

Question 1

Analyse the decision problem faced by VPAC and recommend the policy that the company should pursue.

Question 2

Discuss the strengths and limitations of your model in terms of the usefulness of the guidance that it would provide to VPAC’s managers.