MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
9th Edition
ISBN: 2810022149537
Author: Baye
Publisher: MCG
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Chapter 12, Problem 16PAA
To determine
To explain: The reluctance of the B’s management to release information to its lenders.
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From the late 1990s through the early 2000s, more than 25 domestic steel companies filed for bankruptcy. A combination of low prices with strong competition by foreign competitors and so-called legacy costs of unions are cited as the primary reasons why so many steel companies filed for bankruptcy. In 2002, as Brownstown Steel Corp. was in the process of restructuring its loans to avoid bankruptcy, its lenders requested that the firm disclose full information about its revenues and costs. Explain why Brownstown’s management was reluctant to release this information to its lenders
4.7
Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows:
Demand
Staffing Options
High
Medium
Low
Own staff
650
650
600
Outside vendor
900
600
300
Combination
800
650
500
If the demand probabilities are 0.2, 0.5, and 0.3, and the table below shows the total cost of the different options, construct a risk profile for the optimal decision in the table.
Option
Total Cost
Own Staff
635
Outside Vendor
570
Combination
635
Why would you advise a company to follow a centralized purchasing organizational structure? Provide 10 examples in your reasoning.
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