Sara Lee Corp., maker of food, beverage, and household products, is known especially for its baked products, marketed under its corporate name. For the five years ending July 1 of each year from 2002 to 2006, their bakery division reported the following profits.

Fiscal Year Profits ($ M)

2002 ......... 97

2003 ......... 98

2004 ......... 156

2005 ......... – 4

2006 .........– 197

a) Use a 4- year moving average to predict profits for 2007.

b) Predict the profits for 2007 using a single exponential smooth with smoothing parameter α = 0.5.

c) Think about the exponential smoother. If the parameter were 0.8 would you expect the prediction to be higher or lower? What if it were 0.2? Explain.