Midterm Review Questions Set 1

1481 Words Mar 7th, 2015 6 Pages
REVIEW QUESTION SET #1 FOR THE MIDTERM EXAM
QUESTION 1 (PRODUCTIVITY)
ElectroPlus manufactures electronic components. It has recorded data for the last three years as shown in the table below.
ElectroPlus Productivity Data (in millions of dollars)
2009 2010 2011
Sales

220 258 248

Materials 124 146 142
Labor

56

66

56

Overhead 16

24

20

a) Calculate a measure of labor productivity for each year and comment on the pattern.
b)

Calculate a measure of multifactor productivity for each year using all inputs except labor. What can you say about the combined effect of the non-labor inputs?

c) Calculate a measure of total productivity. Compare the results for the three years with the conclusion obtained from the labor productivity measure.
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b) Determine the production range (between 0-6000) for which each alternative is best.
c) How much should the fixed cost of outsourcing alternative be at least reduced in order for that alternative to be always preferable over the production range of 3001-6000?
QUESTION 5 (REAL OPTIONS ANALYSIS)
McGillSoft (The Company) is a software company that is specialized in video games. The
Company is planning to develop a flight simulation game. There are two game platforms: Xbox and PS3. There are two alternatives for The Company:
Alternative 1 (Sequential Development): In this scenario, the game will be developed first for one of the platforms and then the other one. The development for the first platform takes 2 years and it costs 10M/year. The Company expects to earn $100M from this first platform in total in terms of current year’s dollar. After the first platform, The Company decides whether to develop the game for the second platform. If it is decided to continue for the second platform, the development for this second platform will take 1 year and cost K*10M in total. The revenue from the second platform is expected to be $100M in terms of current year’s dollar. The cash flow for sequential alterative is given as follows:
First Platform
Cost
Revenue

Current Year

Second Platform
Cost
Revenue

Year 1
10

Year 2
10

100
Current Year

Year 3
K*10

100

Alternative 2 (Simultaneous Development): In this scenario, the game will be developed simultaneously for both
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