"An oil producer is trying to decide if and when it should abandon an oil field. For simplicity, assume the producer will abandon immediately (year 0), at the end of year 1, at the end of year 2, or stay at least through the next two years. The major uncertainty is the price of oil, which can go up or down in any year. In each year, there is a 0.49 probability the oil price will go up and a 0.51 probability the oil price will go down. The oil producer decides whether or not to abandon the oil field and then observes whether the price of oil increases or decreases in the following year. The NPV includes all the relevant costs of abandoning the oil field and producing oil and the revenue gained from producing oil. It also already incorporates the producer's MARR. After the producer makes a decision at the end of year 2, we assume there is no more uncertainty. If the producer abandons the oil field at the end of a year, the price of oil in the following years does not impact the producer's NPV. Solve a decision tree to calculate what the oil producer should do immediately, at the end of year 1, and at the end of year 2. You should assume an expected-value decision maker. Enter the expected NPV of the best alternative. The best alternative may have a negative expected NPV.

- If the producer decides to abandon the oil field immediately, the NPV is -$41,000 - If the producer decides to abandon at the end of year 1 and the oil price goes up, the NPV is $0 - If the producer decides to abandon at the end of year 1 and the oil price goes down, the NPV is -$59,000 - If the producer decides to abandon at the end of year 2 and the oil price goes up in years 1 and 2, the NPV is $64,000 - If the producer decides to abandon at the end of year 2 and the oil price goes up in year 1 and goes down in year 2, the NPV is $36,000 - If the producer decides to abandon at the end of year 2 and the oil price goes down in year 1 and goes up in year 2, the NPV is -$5,000 - If the producer decides to abandon at the end of year 2 and the oil price goes down in years 1 and 2, the NPV is -$112,000 - If the producer decides to not abandon the oil field and the oil price goes up in years 1 and 2, the NPV is $65,000 - If the producer decides to not abandon and the oil price goes up in year 1 and goes down in year 2, the NPV is $13,000 - If the producer decides not to abandon and the oil price goes down in year 1 and goes up in year 2, the NPV is -$22,000 - If the producer decides not to abandon and the oil price goes down in years 1 and 2, the NPV is -$69,000"

"An oil producer is trying to decide if and when it should abandon an oil field. For simplicity, assume the producer will abandon immediately (year 0), at the end of year 1, at the end of year 2, or stay at least through the next two years. The major uncertainty is the price of oil, which can go up or down in any year. In each year, there is a 0.37 probability the oil price will go up and a 0.63 probability the oil price will go down. The oil producer decides whether or not to abandon the oil field and then observes whether the price of oil increases or decreases in the following year. The NPV includes all the relevant costs of abandoning the oil field and producing oil and the revenue gained from producing oil. It also already incorporates the producer's MARR. After the producer makes a decision at the end of year 2, we assume there is no more uncertainty. If the producer abandons the oil field at the end of a year, the price of oil in the following years does not impact the producer's NPV.

Solve a decision tree to calculate what the oil producer should do immediately, at the end of year 1, and at the end of year 2. You should assume an expected-value decision maker.
Enter the expected NPV of the best alternative. The best alternative may have a negative expected NPV.
- If the producer decides to abandon the oil field immediately, the NPV is -$37,000
- If the producer decides to abandon at the end of year 1 and the oil price goes up, the NPV is $0
- If the producer decides to abandon at the end of year 1 and the oil price goes down, the NPV is -$47,000
- If the producer decides to abandon at the end of year 2 and the oil price goes up in years 1 and 2, the NPV is $61,000
- If the producer decides to abandon at the end of year 2 and the oil price goes up in year 1 and goes down in year 2, the NPV is $31,000
- If the producer decides to abandon at the end of year 2 and the oil price goes down in year 1 and goes up in year 2, the NPV is -$7,000
- If the producer decides to abandon at the end of year 2 and the oil price goes down in years 1 and 2, the NPV is -$85,000
- If the producer decides to not abandon the oil field and the oil price goes up in years 1 and 2, the NPV is $62,000
- If the producer decides to not abandon and the oil price goes up in year 1 and goes down in year 2, the NPV is $19,000
- If the producer decides not to abandon and the oil price goes down in year 1 and goes up in year 2, the NPV is -$21,000
- If the producer decides not to abandon and the oil price goes down in years 1 and 2, the NPV is -$98,000"

The correct answer is between -14035.0 and -13757.0

please answer in excel

PART 1

You are planning to purchase a house that costs $420,000. You plan to put some money down and borrow the remainder with a 30-year mortgage.

1. Based on your credit score, you believe that you will pay 3.50% interest if you put 20% down. Use function “PMT” to calculate your mortgage payment.
2. Based on your credit score, you believe that you will pay 3.50% interest. Use function “PV” to calculate the loan amount given a payment of $1,500 per month. What is the most that you can borrow?
3. Use function “RATE” to calculate the interest rate given a monthly payment of $1,500 and a loan amount of $336,000.
4. For each scenario, calculate the total amount of money you will pay. (Down payment plus principle (loan amount) plus interest, or, down payment plus monthly payment times number of payments). Suppose in case 2, you borrow the most that you can borrow, and put down the rest to buy the house.
5. For each scenario, calculate the total interest that you will have paid once the mortgage is paid off. (There is not a function for this, enter the formula into the cell.)
6. Assume that you plan to pay an extra $300 per month on top of your $1,500 monthly payment, use function “NPER” to calculate how long it will take you to pay off the $336,000 loan given the higher payment. Assume under this scenario you will pay 3.50% interest. (This should be different from 30 years). Calculate how much interest you will pay in total. Compare this to the value that you calculated for #1.

PART 2

You want to determine whether or not you should save some of your money and put only 10% down on your house. Because you are only putting 10% down, lenders require that you purchase private mortgage insurance (PMI). Assume that annual cost of PMI is 0.8% of the mortgage loan amount that you borrow today. Assume that you will pay PMI for 8 years before you are eligible to waive it.

1. Calculate your total monthly payment for the first 8 years (mortgage payment plus PMI) and the rest 22 years (only mortgage payment).

Monthly cost for PMI = annual cost of PMI/12

2. Calculate the total amount of money you will pay. (Down payment plus principle (loan amount) plus interest plus PMI.)
3. Calculate the total cost of financing of your home purchase (interest plus PMI).
4. Compare this to the total amount of money you will pay associated with a 20% down payment (use data from #1).

Case 14.3

Technology Drives Zipcar’s Success

As a member of Zipcar, the world’s largest car-sharing service, consum ers avoid the costs associated with car ownership: gasoline, insurance, maintenance, and parking. Based in Cambridge, Massachusetts, Zipcar was founded by two moms who met when their children were in the same kindergarten class. Prior to its launch, Zipcar raised $75,000, most of which was spent to develop technology. Today, Zipcar is owned by Avis Budget and offers self-service, on-demand cars by the hour or day. The company provides automobile reservations to its 950,000 members and offers more than 12,000 cars in urban areas, on college campuses, and at airports worldwide. With a seamless user experience, it may be difficult for Zipsters (the company’s name for its members) to realize the complex tech nology that goes into making the car-sharing service so user-friendly. Zipcar relies on a number of different technologies, including mobile, web, telematics, radio-frequency identification (RFID), operational information administration systems, and phone and interactive voice response systems for support and customer service. In addition, there are teams responsible for the company’s security infrastructure, mobile app development, and auto maintenance to make sure Zipcar’s fleet of vehicles is ready for members. At the heart of Zipcar’s technologies is an operational adminis tration system. As a data-driven company, Zipcar relies heavily on infor mation to make company decisions and manage assets. The system enables the company to manage its physical assets—its vehicles—in many locations worldwide. The system provides data about car utiliza tion, when and how people are driving, specific locations, hours used, and miles driven. Using the data, analytics are performed that allow the company to optimize utilization levels. This type of information is valuable for making strategic decisions about supply and demand, including when and where to place cars, the models and types to use, and when to change them. The technology in the cars provides information that allows the company to understand how its cars are being used. Zipcar has created a telematics board for each vehicle with GPS and RFID, which supplies geographic, customer, and utilization information. Using transponders, the RFID technology works with a card reader physically placed on the car’s windshield. After the customer makes a reservation either on the web or via mobile device, the RFID card is used to enter and exit any Zipcar. This technology identifies the user and his or her car reser vation. Once the car is unlocked, the key is in the car attached to a tether on the steering column. The user will also find a toll pass (members pay for tolls) and a gas card (price of gas is included in the rental fee). Because of Zipcar’s technology, the keys can be left in the car without concern of theft. When a user enters or exits a car, hours, usage, and mileage are uploaded to a central computer via a wireless data link. However, for privacy purposes, the location of the vehicle is not tracked. In addition, all cars are equipped with a “kill” function, which allows the company to prevent theft. For security purposes, the car opens only to the designated user. With a mobile device, a user is able to unlock and lock the car and honk its horn, which helps determine a car’s location. Because 98% of Zipcar users have smart phones, mobile and web applications are integral to interfacing with customers. At the heart of Zipcar’s car sharing is a self-serve transaction that allows a user to find, reserve, and access a specific car at a specific location at a specific time. The information is then sent wirelessly to the car, and Zipcar members use their Zipcard to open the car door. Once the car is returned and locked, billing is finalized and information is made avail able to the member. It is rare that Zipsters interact directly with someone from the company because reservations happen via a mobile device or online. Providing top-notch customer service when something goes wrong re quires constant attention to innovative technology solutions. Dedicated phone systems and customer support systems are crucial for things like on-the-road issues. The Zipcar phone system identifies users who are calling, their reservations, and the cars they are driving, so that timely support and problem solving can happen quickly. Technology also supplies information about the vehicle’s service history, which helps with troubleshooting and service. As transportation needs continue to change, Zipcar is working to improve its technology base. The company remains committed to assessing consumer transportation and parking needs for business and personal use. Zipcar is focused on understanding and assessing trip-type needs, whether it is an errand for a few hours, an afternoon at the beach, or a business meeting. Using various technologies, the company has created a seamless experience for consumers who desire alternatives to car ownership. So, the next time you decide to reserve a Zipcar and drive to the beach for the day, you will have a strong support system thanks to the company’s focus on technology.

1.     What type of data does Zipcar use to make decisions on behalf of its customers? Its operations? How does the data used to make customer decisions differ from the data used to make decisions related to operations? Discuss.

2. Discuss how Zipcar manages and deals with information security. What are some of the issues the company faces with regard to security?

3.     What information does Zipcar use to manage its fleet? What information is utilized to decide which types of cars to purchase, how they will be used, and where they will be located? How might weather patterns or seasonality impact the types and number of cars the company purchases?

4.     Discuss how Zipcar leverages technology to acquire new members. Based upon its segmentation of consumers, businesses, and college students, discuss the various technologies utilized to identify the relevant target audiences and the types of messages conveyed to each of them.

Section A:
1. Based on Ricardian's model insights, comment on the following claims:
Firm discussion: "Low-tech countries cannot compete with developed countries
A highly productive person. "
2. Specific factor model of international trade:
(A) State the economic questions it asks, key model assumptions, and key forecasts.
Of the model.
(B) What is the definition of a particular factor in international trade?
(C) Can you find an example of a real specific factor (this is ours)
Lecture), may suffer or benefit when the country is opened internationally
trade?
3. Consider a developing country (China) with two inputs, scarce capital (K) and two inputs.
Abundant labor force (L). The country has two products, computer (C) and desk (D).
Capital and labor. Computers are more capital intensive than desks.
• When the relative price of computer and desk goes down (that is, PC
PD
Decrease), how
Does it affect the purchasing power of capital and labor owners? Please
Please explain clearly.
1
Section B
4. (Ricardo model: completely specialized case) Used in two countries, domestic and foreign
One element for producing two products, shoes and computers, the labor force. You can do your own country
One unit of labor produces shoes and two units of labor produce computers. Foreigner
A country can produce shoes with a labor force of 2 units and a computer with a labor force of 3 units.
Home country is blessed with a labor force of 200 units, but foreign countries
We are blessed with a labor force of 300 units. Preference is the same in the two countries
And it is written by the following utility function: U (S, C) = 1.2 ln S + ln C, where S
C represents shoe and computer consumption respectively.
(A) What should the relative price PS be in a closed economy (closed economy without trade)?
PC
In your home country in equilibrium?
(B) Which countries have a comparative advantage in shoe production and why? None
Can you predict which products Home will export by solving the model numerically?
What will foreigners export if trade occurs?
(C) Draw a relative supply curve of the world using relative supply S + S
∗
Horizontal C + C ∗
Axis and relative price PS
PC
On the vertical axis. In what range price both
Do you specialize in the country? What if the price is not in this range?
(D) Here, we derive the relative demand function of the home country (relative demand S).
C
As a function of relative price PS
PC
). The relative demand function of the world
Same figure as (b). Find Equilibrium Relative Price and Relative Output
After the transaction. What do each country produce? (Note: Home and
Foreigners have the same utility function, the world's relative demand function
It is the same as your own country. )
(E) Is the equilibrium relative price PS?
PC
After higher or lower trade than a closed economy?
Draw a production potential frontier (PPF) and new consumption potential
Frontier (CPF) after trade with your own country. Explain if you are in your own country
Profit from trade.
(F) Do foreign countries benefit or lose from trade? Later draw PPF and CPF
Deal with foreign countries to explain it clearly.
5. (Specific factor model) 2 products, 2 countries, 3 factors (L is mobile)
K and T are specific factors, but two products are produced. Capital (K) is
A specific factor for producing cloth, land (T) is a specific factor for producing
food. Both sectors use the workforce as an input. How does international trade affect profits?
And income distribution between factors? In particular,
(A) Suppose the global price of fabrics rises compared to Autarky at Home.
Compared to that of food after international trade. How will this transaction affect you?
Employment of labor in these two sectors? Use the labor demand function diagram
In two sectors to explain it clearly.
(B) Suppose the global price of fabrics rises compared to Autarky at Home.
Compared to food after international trade. How do transactions affect purchases?
2
The power of the three elements of your country? Who will get it? Who will lose? Please
Please explain clearly.
(C) Suppose the global price of fabrics rises compared to Autarky at Home.
Compared to food after international trade. How do transactions affect purchases?
The power of three foreign factors? Who will get it? Who will lose? Please
Please explain clearly.
(D) What is the source of profits from international trade in this case? Is it the whole
Are Trade Benefits Always Positive for Countries? Use clearly labeled graphs
Production Possibility Frontier (PPF) and Consumption Possibility Frontier (CPF)
For my country to explain why. (Compared to the closed economy at home
The world price of cloth is higher than that of post-international food. )
Section C
6. According to Atlas, the trade patterns between China and the United States are very different.
The United States mainly exports services and high te

Stock Valuation Assignment (Fall 2017 Data)

The purpose of this analysis is to find an intrinsic value for Microsoft (MSFT) using the both the Constant Dividend Discount Model (DDM) and the Non-constant DDM. You will need to (1) estimate Beta in order to calculate the required return for MSFT; (2) estimate dividend growth rate; and (3) estimate future dividends.   

Submit your Excel spreadsheet with all data and formulas so that your answers can be replicated. You may answer the questions on the spreadsheet. HOWEVER, WRAP YOUR TEXT!!! I do NOT want to see text running across 40 columns. Remember, Excel is not a word processor. Do a simple draft print to see if your output is in readable form. Follow instructions as written. NEATNESS AND ORGANIZATION MATTERS!

You are analyzing Microsoft to find an intrinsic value for Microsoft (MSFT) using the both the Constant Dividend Discount Model (DDM) and the Non-constant DDM. I have provided you with an Excel spreadsheet of monthly prices (121 months) from Sept 1, 2007 to Sept 1, 2017). These prices have already been adjusted for dividends. List dates and prices out on your spreadsheet in order to calculate monthly returns.

Using the prices provided, calculate the monthly returns for each of the stocks, where r = (P_t/P_t-1) – 1; which is the same as [(P_t-P_t-1)/ P_t-1] as I covered in the Lecture Video. PLEASE NOTE THAT THE DATA IS LISTED FROM SEPT 2007 TO SEPT 2017! SO BE CAREFUL WITH YOUR RETURN FORMULA! There are 121 months to calculate 120 monthly returns. You may post monthly returns as decimals to 6 places or percentages to 4 places. For example, average return for MSFT can be written as .009999 or .9999%.

(10 points)

At the bottom of the column for each stock calculate the Average Monthly Return (use AVERAGE() function) and the Standard Deviation [use STDEV.P()] population function NOT STDEV() sample function).

As a check, you should find your average returns to be: MSFT = 1.2310% and SPY = .6861%.

(5 points)

Calculate and Interpret the Correlation Coefficient (r_1,2) between Microsoft (MSFT) and S&P 500 Index (SPY). (use CORREL() function). (5 points)

We can estimate the Beta for MSFT over the 120-month period by running a Regression of SPY returns on the x-axis (independent variable) and MSFT returns on the y-axis (dependent variable). The Beta is the SLOPE of the regression. To find Beta use the SLOPE function in Excel. Be careful use RETURNS NOT prices!

How does your estimate compare to the FinanceYahoo.com beta and the Value Line beta? What does Beta represent? (10 points)

Now, let’s check the stability of Beta. You may again use the SLOPE function in Excel, where SPY is independent & MSFT is dependent variable.

Estimate Beta over the first 60 monthly returns (5 years): October 1, 2007 to September 1, 2012.

Estimate Beta over the second 60 monthly returns (5 years):         October 1, 2012 to September 1, 2017.

What is the beta for each period? Is there a substantial difference between the two Betas?

(5 points)

Given the information below, use the CAPM to estimate the required rate of return for MSFT. Round to 2 decimals, e.g., x.xx%, 1.23%

Return on the market portfolio (SPY) R_SPY = 9.25% (based on 25 years of historical data); the risk free rate is R_f = 3.0% (based on L-T inflation rate of 2.0% & real return of 1.0%); USE MSFT beta estimate: b = 0.97

(10 points)

Based on past trends and ValueLine estimate, let’s assume MSFT will pay a dividend of $1.64 in 2018. Therefore, let’s assume that D₁ = $1.64, because it will not be fully paid until the end of Year 2018. Let’s also assume that MSFT will grow its future dividends at a L-T constant rate of g = 6%. Assuming a required rate of return found in (7) above, estimate the current value of MSFT using the Constant Growth DDM.   Assume that D₁ = $1.64

(10 points)

Now, using the Value Line sheet, estimate the average growth rate of dividends for MSFT over the last 10 years, from 2007-2017? Round your growth estimate to 4 decimal places. [Hint: The Growth rate (g) can be calculated as CPT i on your calculator or in Excel as a TVM problem.

(5 points)

Two-stage Non-constant DDM: Now let’s assume that for the next four years MSFT will grow its dividends at the growth rate you estimated in (9) above. Assuming D₁ = $1.64, what are the dividends for: D₂ ; D₃ ; D₄; and D₅ if they grow at the rate estimated in (9)? You may round each dividend estimate to the nearest penny.

(10 points)

Now, let’s assume that the dividend growth reverts back to a L-T sustainable growth rate = 6% after Year 5 to infinity. Estimate is D₆ and P₅.

(5 points)

Use the Non-constant growth DDM from the Stock Video Lecture (at 17:20) to estimate the current value of MSFT using the dividend information you found in (10) & (11) above; assume a L-T sustainable growth rate of g = 6% after Year 5; and the required rate of return found in (7). [HINT: You already have all the data, not much work left here….find the sum of the PV of the cash flows.]

(10 points)

Which of the two models do you think is more reasonable (Constant DDM or Non-constant DDM)? WHY?

(5 points)

What is the current market price of MSFT? Based on your analysis, would you recommend buying this stock at the current market price? Explain why or why not?

(10 points)

Go through the case study and answer the questions that follow.
Business process management (BPM) has dramatic business and technology effects. It provides organizations with the ability to save money, save time, and deliver value through real return on investment (ROI). BPM as a concept boosts an enterprise’s ability to stay competitive and remain agile in a constantly changing global marketplace. Demand for Improved Business Processes After several years of heavy investment in technology, many organizations question the capability of IT functions, and the technology vendors and consultants that support them, to deliver the benefits they promise. They are wary of investing more in IT, yet place greater demands on IT, and expect IT to respond faster. The demand for new or improved business processes drives these requirements.
Improving customer service, bringing new products to market, and reducing cost inefficiencies all push business processes and their effective management to the top of the priority list. One aspect of the response to these pressures on IT has been a change in the way that organizations are looking to approach process automation. Increasingly, CIOs are looking for a different way of improving business processes, avoiding investment in large, expensive, and risky new application projects that have so often led to disappointment. Instead, they want to leverage the existing assets and investment and concentrate their efforts on the automation of processes across those assets. This new approach has been labeled business process management (BPM), and is being addressed with a collection of technologies that make up the BPM suite. What Is BPM? BPM, both the software and the management practice, provides the ability to model, manage, and optimize processes. BPM is about the continuous comprehension and management of business processes that interact with people and systems, both within and across organizations.
It is based on the following assumptions:
• Business processes are ever-changing and developing.
• Processes are interrelated and interdependent.
• Processes must flow between multiple organizations and interested parties.
• Processes interact with systems and people. Those people can be employees, partners, customers, or suppliers.
©Al Tareeqah Management Studies - 2020 6
Successful deployment of a BPM suite can benefit both lines of business and the IT department. For the organization as a whole, BPM can ensure business process transparency and visibility, which can lead to higher productivity, reduced errors, and tighter compliance with legal requirements. This directly impacts an organization’s ability to adapt to changes in the marketplace (e.g. introduce new products), reduce operational costs, and improve customer service. Intercai Mondiale, an independent agency, conducted a survey on a random sampling of a leading BPM vendor’s customer base and found that
▪ 100% reported increased productivity
▪ 95% improved quality of service
▪ 82% reduced operating costs
▪ 82% saw faster process cycle times
For the IT department, BPM can connect disparate systems, thereby squeezing more value out of current investments. BPM allows IT to future-proof infrastructure so that additions or changes to the system do not require reinvention or significant changes to the business processes. The service-oriented nature of such an infrastructure allows quick development and deployment of new applications and processes. This allows IT to be more responsive to the changing demands of the organization.
Questions:

1. What in your understanding is BPM?

2. What are the assumptions behind BPM?

3. What are the reasons for BPM gaining importance?

Today's buyers allot an ample amount of time for purchases, and most of them are keen to interact with salespeople.

True

False

Sarah is a salesperson who prefers contacting her sales leads before getting any information about them or their companies. Sarah uses _____ as a method of sales prospecting.

Which of the following technologies is a valuable tool for accumulating and updating prospect information on a regular basis?

Company records can be used for:

FitterYou Inc., a company that manufactures health products, hosts an event at a local hotel to generate potential customers. The company invites approximately 120 prospects to the event through direct mails. At the event, the sales representatives of the company give presentations on the various products offered by the company. In this scenario, FitterYou Inc. is using _____ to generate sales leads.

Who among the following would most likely be a sales lead for a company that manufactures toys?

Salespeople who do not regularly prospect are operating under the assumption that:

Which of the following is true of assessment questions?

The types of questions classified by the amount and specificity of information desired and those classified by strategic purpose are mutually exclusive.

True

False

Which of the following is a difference between open-end questions and closed-end questions?

Which of the following statements is true of pictures?

Which of the following can improve sensing skills in listeners?

A written sales proposal is likely to fail when _____.

_____ are referred to as complete self-contained sales presentations on paper, often accompanied by other verbal sales presentations before or after the delivery of these paper presentations.

Which of the following is a function of Section 5 of the sales dialogue template?

Unless all the stages of the ADAPT process are completed, the customer value proposition will not contain enough detail to be useful.

True

False

Problem 11-26 Close or Retain a Store [LO11-2]

Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below:

The North Store has consistently shown losses over the past two years. For this reason, management is giving consideration to closing the store. The company has asked you to make a recommendation as to whether the store should be closed or kept open. The following additional information is available for your use:

1. The breakdown of the selling and administrative expenses that are shown above is as follows:

*Allocated on the basis of sales dollars.

*Allocated on the basis of sales dollars.

1. The lease on the building housing the North Store can be broken with no penalty.

2. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.

3. The general manager of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee at a salary of $13,100 per quarter. The general manager of the North Store would continue to earn her normal salary of $14,100 per quarter. All other managers and employees in the North store would be discharged.

4. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This person’s salary is $5,700 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete.

5. The company pays employment taxes equal to 15% of their employees' salaries.

6. One-third of the insurance in the North Store is on the store’s fixtures.

7. The “General office salaries” and “General office—other” relate to the overall management of Superior Markets, Inc. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person’s compensation is $7,050 per quarter.

Required:

1. How much employee salaries will the company avoid if it closes the North Store?

2. How much employment taxes will the company avoid if it closes the North Store?

3. What is the financial advantage (disadvantage) of closing the North Store?

4. Assuming that the North Store's floor space can’t be subleased, would you recommend closing the North Store?

5. Assume that the North Store's floor space can’t be subleased. However, let's introduce three more assumptions. First, assume that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Superior Markets. Second, assume that the East Store has enough capacity to handle the increased sales that would arise from closing the North Store. Third, assume that the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in the East store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store?

How much employee salaries will the company avoid if it closes the North Store?

How much employment taxes will the company avoid if it closes the North Store?

What is the financial advantage (disadvantage) of closing the North Store? (Enter any "disadvantages" as a negative value.)

Requirement 5

Assume that the North Store's floor space can’t be subleased. However, let's introduce three more assumptions. First, assume that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Superior Markets. Second, assume that the East Store has enough capacity to handle the increased sales that would arise from closing the North Store. Third, assume that the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in the East store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store? (Enter any "disadvantages" as a negative value.)

Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below:

The North Store has consistently shown losses over the past two years. For this reason, management is giving consideration to closing the store. The company has asked you to make a recommendation as to whether the store should be closed or kept open. The following additional information is available for your use:

1. The breakdown of the selling and administrative expenses that are shown above is as follows:

*Allocated on the basis of sales dollars.

*Allocated on the basis of sales dollars.

1. The lease on the building housing the North Store can be broken with no penalty.

2. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.

3. The general manager of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee at a salary of $10,800 per quarter. The general manager of the North Store would continue to earn her normal salary of $11,800 per quarter. All other managers and employees in the North store would be discharged.

4. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This person’s salary is $4,500 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete.

5. The company pays employment taxes equal to 15% of their employees' salaries.

6. One-third of the insurance in the North Store is on the store’s fixtures.

7. The “General office salaries” and “General office—other” relate to the overall management of Superior Markets, Inc. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person’s compensation is $5,900 per quarter.

Required:

1. How much employee salaries will the company avoid if it closes the North Store?

2. How much employment taxes will the company avoid if it closes the North Store?

3. What is the financial advantage (disadvantage) of closing the North Store?

4. Assuming that the North Store's floor space can’t be subleased, would you recommend closing the North Store?

5. Assume that the North Store's floor space can’t be subleased. However, let's introduce three more assumptions. First, assume that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Superior Markets. Second, assume that the East Store has enough capacity to handle the increased sales that would arise from closing the North Store. Third, assume that the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in the East store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store?

How much employee salaries will the company avoid if it closes the North Store?

How much employment taxes will the company avoid if it closes the North Store?