Miller-Orr model to manage its cash investment. Seminole’s management has determined that the cost of either investing in or selling marketable securities is $200. By looking at Seminole Company’s past cash needs, they have determined that the variance of daily cash flows is $10,000. Seminole Company’s opportunity cost of cash, per day, is estimated to be 0.05%. Seminole management has figured, based on their experience dealing with the cash flows of the company, that there should be a cushion— a safety stock—of cash of $20,000. 1. How much is the variance of daily cash flows? (Use a number, no decimal value, no commas, no currency, no space) * 2. How much is the opportunity cost of cash, per day? (Use a number,

Miller-Orr model to manage its cash investment. Seminole’s management has determined that the cost of either investing in or selling marketable securities is $200. By looking at Seminole Company’s past cash needs, they have determined that the variance of daily cash flows is $10,000. Seminole Company’s opportunity cost of cash, per day, is estimated to be 0.05%. Seminole management has figured, based on their experience dealing with the cash flows of the company, that there should be a cushion— a safety stock—of cash of $20,000. 1. How much is the variance of daily cash flows? (Use a number, no decimal value, no commas, no currency, no space) * 2. How much is the opportunity cost of cash, per day? (Use a number,

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter11: Simulation Models

Section: Chapter Questions

Problem 54P

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The Tinkan Company produces one-pound cans for the Canadian salmon industry. Each year the salmon spawn during a 24-hour period and must be canned immediately. Tinkan has the following agreement with the salmon industry. The company can deliver as many cans as it chooses. Then the salmon are caught. For each can by which Tinkan falls short of the salmon industrys needs, the company pays the industry a 2 penalty. Cans cost Tinkan 1 to produce and are sold by Tinkan for 2 per can. If any cans are left over, they are returned to Tinkan and the company reimburses the industry 2 for each extra can. These extra cans are put in storage for next year. Each year a can is held in storage, a carrying cost equal to 20% of the cans production cost is incurred. It is well known that the number of salmon harvested during a year is strongly related to the number of salmon harvested the previous year. In fact, using past data, Tinkan estimates that the harvest size in year t, Ht (measured in the number of cans required), is related to the harvest size in the previous year, Ht1, by the equation Ht = Ht1et where et is normally distributed with mean 1.02 and standard deviation 0.10. Tinkan plans to use the following production strategy. For some value of x, it produces enough cans at the beginning of year t to bring its inventory up to x+Ht, where Ht is the predicted harvest size in year t. Then it delivers these cans to the salmon industry. For example, if it uses x = 100,000, the predicted harvest size is 500,000 cans, and 80,000 cans are already in inventory, then Tinkan produces and delivers 520,000 cans. Given that the harvest size for the previous year was 550,000 cans, use simulation to help Tinkan develop a production strategy that maximizes its expected profit over the next 20 years. Assume that the company begins year 1 with an initial inventory of 300,000 cans.
Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. Is Ben Gibson acting legally? Is he acting ethically? Why or why not?
Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. As the Marketing Manager for Southeastern Corrugated, what would you do upon receiving the request for quotation from Coastal Products?
It costs a pharmaceutical company 75,000 to produce a 1000-pound batch of a drug. The average yield from a batch is unknown but the best case is 90% yield (that is, 900 pounds of good drug will be produced), the most likely case is 85% yield, and the worst case is 70% yield. The annual demand for the drug is unknown, with the best case being 20,000 pounds, the most likely case 17,500 pounds, and the worst case 10,000 pounds. The drug sells for 125 per pound and leftover amounts of the drug can be sold for 30 per pound. To maximize annual expected profit, how many batches of the drug should the company produce? You can assume that it will produce the batches only once, before demand for the drug is known.
Rollo Megabux has $1 million to invest in stocks orbonds. The percentage yield on each investment during thecoming year depends on whether the economy has a goodor a bad year (see Table 17). It is equally likely that theeconomy will have a good or a bad year.a If Rollo is risk-neutral, how should he invest hismoney?b For $10,000, Rollo can hire a consulting firm toforecast the state of the economy. The consulting firm’sforecasts have the following properties:P(good forecast|economy good) .80P(good forecast|economy bad) .20Should Rollo hire the consulting firm? What are EVSIand EVPI? Economy EconomyHas Good Has BadYear YearYield on stocks 22% 10%Yield on bonds 16% 14%
Michelle, age 45, currently makes $95,000. Her wage replacement ratio is determined to be 75 percent. She expects that inflation will average 3 percent for her entire life expectancy. She expects to earn 8 percent on her investments and retire at age 65, possibly living to age 95. She has sent for and received her Social Security benefit statement, which indicated that her Social Security retirement benefit in today’s dollars adjusted for early retirement is $20,000 per year. How much capital does Jordan need to retire at age 65?.
Condo Construction Company is going to First NationalBank for a loan. At the present time, the bank is willing to lendCondo up to $1 million, with interest costs of 10%. Condobelieves that the amount of borrowed funds needed during thecurrent year is normally distributed, with a mean of $700,000and a standard deviation of $300,000. If Condo needs to borrowmore money during the year, the company will have to go toLouie the Loan Shark. The cost per dollar borrowed fromLouie is 25¢. To minimize expected interest costs for the year,how much money should Condo borrow from the bank?
PROBLEM The management of the Book Warehouse Company wishes to apply the Miller-Orr model to manage its cash investment. They have determined that the cost of either investing in or selling marketable securities is $100. By looking at Book Warehouse’s past cash needs, they have determined that the variance of daily cash flows is $20,000. Book Warehouse’s opportunity cost of cash, per day, is estimated to be 0.03%. Based on experience, management has determined that the cash balance should never fall below $10,000. 1. How much is the cost per transaction?(Use a number, no decimal value, no commas, no currency, no space) * 2. How much is the return point based on the Miller-Orr model of cash management? (Use a number, no decimal value, no commas, no currency, no space) * 3. How much is the upper limit based on the Miller-Orr model of cash management?(Use a number, no decimal value, no commas, no currency, no space) * PLEASE ANSWER ALL QUESTIONS. THANKS!
Ruth Company currently has $1,000,000 in accounts receivable. Its days sales outstanding (DSO) is 50days. The company wants to reduce its DSO to the industry average of 32 days by pressuring more ofits customers to pay their bills on time. The company’s CFO estimates that if this policy is adopted thecompany’s average sales will fall by 10 percent. Assuming that the company adopts this change andsucceeds in reducing its DSO to 32 days and does lose 10 percent of its sales, what will be the level ofaccounts receivable following the change? Assume a 365-day year.
Suppose my utility function for asset position x is givenby u(x) ln x.a Am I risk-averse, risk-neutral, or risk-seeking? b I now have $20,000 and am considering the follow-ing two lotteries: L1: With probability 1, I lose $1,000.L2: With probability .9, I gain $0.L2: With probability .1, I lose $10,000.Determine which lottery I prefer and the risk premium of L2.
Michelle owns a house in which she keeps valuables worth 100,000 which can get stolen with probability 1%. She can purchase coverage C of the amount C ∈ [0; 100,000] at premium π = 0.05 dollars for each dollar covered. Her Bernouilli utility function is u(w) = ln(w). Assume she has no other assets. 1. Set up her maximization problem. 2. How much insurance will she choose to buy? 3. How much profits does the insurance company earn on insuring Michelle? 4. Does the fact that the insurance company earn profits mean that Michelle is worse off com-pared to the situation in which she is not insured? Explain what is happening. 5. How much insurance will she buy if insurance companies charge an actuarially fair insurance rate?