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Business Decision Making: Profit Forecasting, Break-even Analysis, and Expected Monetary Value Evaluation

A solution-focused assignment on business decision making, covering profit forecasting and break-even analysis.

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    Business Decision Making: Profit Forecasting, Break - even Analysis, and Expected Monetary Value Evaluation 1. The XYZ Paint Shop owns and operates a dozen shops in central Missouri. Their signature paint is Green Pearl on Electric Blue Candy. Sales (X, in millions of dollars) is related to Profits (Y, in hundreds of thousands of dollars) by the regression equation Y = 15.886 + 0.75X. What is your forecast of profit for a store with sales of $92 million? $105 million? Y=15.886+0.75*92=15.886+69=$84.886 Y=15.886+0.75*105=15.886+78.75=$94.636 2. A product is currently made in a job shop, where fixed costs are $11,000 per year and variable cost is $60 per unit. The firm sells the product for $100 per unit. What is the break - even point for this operation? What is the profit (or loss) on a demand of 250 units per year? 275 40 $ 000 , 11 $ 60 $ 100 $ 000 , 11 $ Re = = − = − = VC v FC Q BEP unit/year P=Q(R - v) - FC=250($100 - $60) - $11,000=250*$40 - $11,000=$10,000 - $11,000= - $1,000 3. (TCO 13, 14) XYZ coating company has reviewed four new processes for improving their coating line. The four processes, labeled A, B, C, and D use different technology and have different capacities. All the processes have the same level of production and the lifetime. The four states of nature represent four levels of consumer acceptance of the firm's products. Values in the table are net present value of future profits in millions of dollars. Forecasts indicate that there is a 0.6 probability of acceptance level 1, 0.5 chance of acceptance level 2, 0.3 chance of acceptance level 3, and 0.4 change of acceptance level 4. Using the criterion of expected monetary value, which production alternative should be chosen? Consumer Acceptance Level (states of nature) 1 2 3 4 Alternative A 75 85 75 65 Alternative B 55 55 75 65 Alternative C - 95 - 15 155 225 Alternative D 35 55 85 135 Consumer Acceptance Level (states of nature)

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