Here are earnings per share for two companies by quarter from the first quarter of 2009 through the second quarter of 2012. Forecast earnings per share for the rest of 2012 and 2013. Use exponential smoothing to forecast the third period of 2012, and the time series decomposition method to forecast the last two quarters of 2012 and all four quarters of 2013. (It is much easier to solve this problem on a computer spreadsheet so you can see what is happening.)

a. For the exponential smoothing method, choose the first quarter of 2009 as the beginning forecast. Make two forecasts: one with α = 0.10 and one with α = 0.30.
b. Using the MAD method of testing the forecasting model’s performance, plus actual data from 2009 through the second quarter of 2012, how well did the model perform?
c. Using the decomposition of a time series method of forecasting, forecast earnings per share for the last two quarters of 2012 and all four quarters of 2013. Is there a seasonal factor in the earnings?

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EARNINGS PER SHARE QUARTER COMPANY A COMPANY B 2009 $1.67 2.35 1.11 1.15 1.56 2.04 1.14 0.38 0.29 $0.17 0.24 0.26 0.34 0.25 0.37 0.36 0.44 2010 2011 0.33 0.40 0.41 0.47 0.30 0.47 -0.18 (loss) -0.97 (loss) IV 0.20 2012 -1.54 (loss) 0.38