Redback Industries is a relatively small but successful and fast-growing maker of peripheral devices for cell phones including battery chargers, enhanced antennas, SIM cards, and custom carrying cases. Costco is considering purchasing Redback in order to sell the devices as private label offerings. However, Costco has set an offer price of $ 600M that depends on whether Redback’s current Annual Net Income
1. Redback Industries is a relatively small but successful and fast-growing maker of peripheral devices for cell phones including battery chargers, enhanced antennas, SIM cards, and custom carrying cases. Costco is considering purchasing Redback in order to sell the devices as private label offerings. However, Costco has set an offer price of $ 600M that depends on whether Redback’s current Annual Net Income is higher and significantly different from its 14-year average of $ 104.5M per year; Redback has indicated it is willing to sell itself to Costco at the $600M price.
Use the following information to determine at the 95 % Level Of Confidence whether Costco will proceed with the purchase at the planned price of $ 600M or will lower its offering price if Redback’s current Annual Net Income is not greater than $ 104.5M per year.
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Redback Industries Normalized Yearly Annual Net Income over the last 14 years is $ 104.5M
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Redback Industries is currently reporting Yearly Annual Net Income of $ 111.25M
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The standard deviation of Redback’s Net Income = $ 10.85M
State the Null and Alternative Hypotheses and determine whether to reject the Null Hypothesisand whether Costco should proceed with the deal as stated.
Answers
Null Hypothesis Alternative Hypothesis Alpha 'α'
Critical Test Value Test Statistic Reject / Fail to Reject Null?
Value
Degrees of Freedom
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