Practical Management Science 5th Edition Wayne L. Winston, Christian Albright - Solutions

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The government is auctioning off oil leases at two sites. At each site, 150,000 acres of land are to be auctioned. Cliff Ewing, Blake Barnes, and Alexis Pickens are bidding for the oil. Government rules state that no bidder can receive more than 45% of the land being auctioned. Cliff has bid $2000
Suppose it costs $30,000 to purchase a new car. The annual operating cost and resale value of a used car are shown in the file P05_60.xlsx. Assume that you presently have a new car. Determine a replacement policy that minimizes your net costs of owning and operating a car for the next six years.
Based on Bean et al. (1988). Simon’s Mall has 9000 square feet of space to rent and wants to determine the types of stores that should occupy the mall. The minimum number and maximum number of each type of store (along with the square footage of each type) are given in the file P06_74.xlsx. The
On Monday morning, you have $5000 in cash on hand. For the next seven days, the following cash requirements must be met: Monday, $5000; Tuesday, $6000; Wednesday, $9000; Thursday, $2000; Friday, $7000; Saturday, $2000; Sunday, $3000. At the beginning of each day, you must decide how much money (if
The file P07_28.xlsx lists the scores of all NFL games played during the 2014 season. Use this data set to rank the NFL teams from best to worst.
Carry out the suggestion in Modeling Issue 2 for the 2015 NFL season. That is, use a weighted sum of squared prediction errors, where the weight on any game played k weeks ago is 0.95k. You can assume that the ratings are being made right after the final regular games of the season (in week 17), so
By the time you are reading this, the 2016 NFL season will have finished, and the results should be available at www.pro-football-reference.com/years/2016/games.htm. Do whatever it takes to get the data into Excel in the format of this example. Then, use Solver to find the ratings and home-field
Suppose the current exchange rate is 115 yen per dollar. We currently have a demand for 50 units of our product when the unit price is 800 yen. The cost of producing and shipping the product to Japan is $6, and the current elasticity of demand is -2.5. Find the optimal price to charge for the
Suppose you are tested to see if you have a rare disease. Assume that if you have the disease, your test will always come back positive, but if you do not have the disease, there is still a 0.001 chance that you will test positive. In reality, only 1 of 10,000 people have the disease. Your doctor
Consider a population of 3000 people, 1400 of whom are men. Assume that 700 of the women in this population earn at least $60,000 per year, and 500 of the men earn less than $60,000 per year.a. What is the probability that a randomly selected person from this population earns less than $60,000 per
You now have $5000. You will toss a fair coin four times. Before each toss you can bet any amount of your money (including none) on the outcome of the toss. If heads comes up, you win the amount you bet. If tails comes up, you lose the amount you bet. Your goal is to reach $15,000. It turns out
Play Things is developing a new Lady Gaga doll. The company has made the following assumptions: ■ The doll will sell for a random number of years from 1 to 10. Each of these 10 possibilities is equally likely.■ At the beginning of year 1, the potential market for the doll is two million.
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 file P14_07.xlsx contains data on 74 companies that have either gone bankrupt or haven’t. The data set also contains data on five frequently quoted accounting ratios.a. Create a pivot table that shows the average of each ratio, broken down by the Yes/No values in column G. Comment on which
The Indiana University Credit Union Eastland Plaza branch was having trouble getting the correct staffing levels to match customer arrival patterns. On some days, the number of tellers was too high relative to the customer traffic, so that tellers were often idle. On other days, the opposite
The file P14_50.xlsx contains five years of monthly data for a company. The first variable is Time (1–60). The second variable, Sales1, has data on sales of a product. Note that Sales1 increases linearly throughout the period, with only a minor amount of noise. (The third variable, Sales2, will
Pernavik Dairy produces and sells a wide range of dairy products. Because a government regulatory board sets most of the dairy’s costs and prices, most of the competition between the dairy and its competitors takes place through advertising. The controller of Pernavik has developed the sales and
The Wilhoit Company has observed that there is a linear relationship between indirect labor expense and direct labor hours. Data for direct labor hours and indirect labor expense for 18 months are given in the file P14_48.xlsx. At the start of month 7, all cost categories in the Wilhoit Company
The file P14_47.xlsx contains monthly cost accounting data on overhead costs, machine hours, and direct material costs. This problem will help you explore the meaning of R2 and the relationship between R2 and correlations.a. Create a table of correlations between the individual variables.b. If you
The file P14_42.xlsx contains monthly data on consumer revolving credit (in millions of dollars) through credit unions.a. Use these data to forecast consumer revolving credit through credit unions for the next 12 months. Do it in two ways. First, fit an exponential trend to the series. Second, use
The auditor of Kiely Manufacturing is concerned about the number and magnitude of year-end adjustments that are made annually when the financial statements of Kiely Manufacturing are prepared. Specifically, the auditor suspects that the management of Kiely Manufacturing is using discretionary
The Baker Company wants to develop a budget to predict how overhead costs vary with activity levels. Management is trying to decide whether direct labor hours (DLH) or units produced is the better measure of activity for the firm. Monthly data for the preceding 24 months appear in the file
A power company located in southern Alabama wants to predict the peak power load (i.e., the maximum amount of power that must be generated each day to meet demand) as a function of the daily high temperature (X). A random sample of 25 summer days is chosen, and the peak power load and the high
The file P14_29.xlsx contains monthly time series data for total U.S. retail sales of building materials (which includes retail sales of building materials, hardware and garden supply stores, and mobile home dealers).a. Is seasonality present in these data? If so, characterize the seasonality
The file P14_28.xlsx contains monthly retail sales of U.S. liquor stores.a. Is seasonality present in these data? If so, characterize the seasonality pattern.b. Use Winters’ method to forecast this series with smoothing constants α = β = 0.1 and γ = 0.3. Does the forecast series seem to track
The file P14_27.xlsx contains yearly data on the proportion of Americans under the age of 18 living below the poverty level.a. Create a time series chart of the data. Based on what you see, which of the exponential smoothing models do you think will provide the best forecasting model? Why?b. Use
The file P14_26.xlsx contains the monthly number of airline tickets sold by the CareFree Travel Agency.a. Create a time series chart of the data. Based on what you see, which of the exponential smoothing models do you think will provide the best forecasting model? Why?b. Use simple exponential
The file P14_25.xlsx contains the quarterly numbers of applications for home mortgage loans at a branch office of Northern Central Bank.a. Create a time series chart of the data. Based on what you see, which of the exponential smoothing models do you think will provide the best forecasting model?
The file P14_22.xlsx contains total monthly U.S. retail sales data. While holding out the final six months of observations for validation purposes, use the method of moving averages with a carefully chosen span to forecast U.S. retail sales in the next year. Comment on the performance of your
The file P14_21.xlsx contains the weekly sales of rakes at a hardware store for a two-year period. Use the moving averages method, with spans of your choice, to forecast sales for the next 30 weeks. Does this method appear to track sales well? If not, what might be the reason?
The file P14_20.xlsx contains the monthly sales of iPod cases at an electronics store for a two-year period. Use the moving averages method, with spans of your choice, to forecast sales for the next six months. Does this method appear to track sales well? If not, what might be the reason?
The file P14_18.xlsx contains data on over 200 movies that came out in 2006 and 2007. Create a new variable Total Revenue that is the sum of Total US Gross, International Gross, and US DVD Sales. How well can this new variable be predicted from the data in columns C–F? For Distributor, relabel
The manager of a commuter rail transportation system was recently asked by her governing board to determine which factors have a significant impact on the demand for rides in the large city served by the transportation network. The system manager collected data on variables thought to be possibly
The file P14_04.xlsx lists the monthly sales for a company (in millions of dollars) for a 10-year period.a. Fit an exponential trend line to these data.b. By what percentage do you estimate that the company will grow each month?c. Why can’t a high rate of exponential growth continue for a long
The file P14_01.xlsx contains the monthly number of airline tickets sold by a travel agency.a. Does a linear trend appear to fit these data well? If so, estimate and interpret the linear trend model for this time series. Also, interpret the R2 and se values.b. Provide an indication of the typical
Do exponentially distributed random numbers have the memoryless property? Here is one way to find out. Generate many exponentially distributed random numbers with mean 3, using the formula in the previous problem. Find the fraction of them that are greater than 1. This estimates the probability P(X
A company currently has two warehouses. Each warehouse services half the company’s demand, and the annual demand serviced by each warehouse is normally distributed with mean 10,000 and standard deviation 1000. The lead time for meeting demand is 1/10 year. The company wants to meet 95% of all
A highly perishable drug spoils after three days. A hospital estimates that it is equally likely to need between one and nine units of the drug daily. Each time an order for the drug is placed, a fixed cost of $200 is incurred as well as a purchase cost of $50 per unit. Orders are placed at the end
Computco sells high-end computer workstations. The demand for its workstations during a month follows a normal distribution, with a mean of 400 and standard deviation of 100. Each time an order is placed, costs of $600 per order and $1500 per workstation are incurred. Workstations are sold for
Lowland Appliance replenishes its stock of 52-inch flat-screen TVs three times a year. Each order takes 1/9 of a year to arrive. Annual demand for these TVs follows a normal distribution with a mean of 990 and a standard deviation of 40. Assume that the cost of holding a TV in inventory for a year
Every four years, Blockbuster Publishers revises its textbooks. It has been three years since the best-selling book The Joy of Excel has been revised. At present, 2000 copies of the book are in stock, and Blockbuster must determine how many copies of the book to print for the next year. The sales
Change the ordering simulation so that emergency orders are never made. Instead, assume that all excess demand is backlogged, so the emergency cost should be replaced by a unit penalty cost for shortages. You can use the value $10. Now the inventory position is the amount on hand, plus the amount
Change the ordering simulation so that emergency orders are never made. If demand in any week is greater than supply, the excess demand is simply lost. Simulate the same (s, S) policies as in the example.
Change the ordering simulation in Example 12.7 so that the lead time can be 1, 2, 3, or 4 weeks with probabilities 0.5, 0.2, 0.2, and 0.1, respectively. Also, assume that based on previous orders, orders of sizes 350, 0, and 400 are scheduled to arrive at the beginnings of weeks 2, 3, and 4,
Modify the synchronized ordering model in Example 12.5 slightly so that you can use a two-way SolverTable on the fixed costs. Specifically, enter a formula in cell B9 so that the fixed cost of ordering kings alone is equal to the fixed cost of ordering queens alone. Then let the two inputs for
In the basic EOQ model in Example 12.1, suppose that the fixed cost of ordering is $500. Use Solver to find the new optimal order quantity. How does it compare to the optimal order quantity in the example? Could you have predicted this from Equation (12.4)?Equation (12.4)Q = √2KD/h
solution
The Jogger Shoe Company is trying to decide whether to make a change in its most popular brand of running shoes. T he new style would cost the same to produce and be priced the same, but it would incorporate a new kind of lacing system that (according to its marketing research people) would make it
1. Starting with the spreadsheet model from Case 2.1 (or starting over, if you like), develop a spreadsheet model that lets Ewing see the implications of any set of approved projects. You should again use 0-1 values to indicate which products are approved. All of the capital expenditures in Table
1. Suppose that the yields of the five zero-coupon bonds are all 8.5% one year from today. What are the returns of each bond over the period?2. Using a simulation with 1000 iterations, estimate the expected return of each bond over the year. Estimate the standard deviations of the returns.3.
Suppose you are using an underwater probe to search for a sunken ship. At any time in the search, your probe is located at some point (x,y) in a grid, where the distance between lines in the grid is some convenient unit such as 100 meters. The sunken ship is at some unknown location on the grid,
Nucleon is trying to determine whether to produce a new drug that makes pigs healthier. The product will be sold in years 1 to 5. The following information is relevant:■ A fixed cost is incurred on January 1 of year 0 and will be between $1 billion and $5 billion. There is a 20% chance the fixed
It is January 1 of year 0, and Merck is trying to determine whether to continue development of a new drug. The following information is relevant. You can assume that all cash flows occur at the ends of the respective years.■ Clinical trials (the trials where the drug is tested on humans) are
It is January 1 of year 0, and Lilly is considering developing a new drug called Dialis. We are given the following information■ On March 15 of year 0, Lilly incurs a fixed cost that is assumed to follow a triangular distribution with best case $10 million, most likely case $35 million, and worst
It is now May 1 of year 0, and GM is deciding whether to produce a new car. The following information is relevant.■ The fixed cost of developing the car is incurred on January 1 of year 1 and is assumed to follow a triangular distribution with smallest possible cost $300 million, most likely cost
In this version of “dice blackjack,” you toss a single die repeatedly and add up the sum of your dice tosses. Your goal is to come as close as possible to a total of 7 without going over. You may stop at any time. If your total is 8 or more, you lose. If your total is 7 or less, the “house”
Based on Bukiet et al. (1997). Many Major League teams (including Oakland, Boston, LA Dodgers, and Toronto) use mathematical models to evaluate baseball players. A common measure of a player’s offensive effectiveness is the number of runs generated per inning (RPI) if a team were made up of nine
You are unemployed, 21 years old, and searching for a job. Until you accept a job offer, the following situation occurs. At the beginning of each year, you receive a job offer. The annual salary associated with the job offer is equally likely to be any number between $20,000 and $100,000. You must
Based on Hoppensteadt and Peskin (1992). The following model (the Reed–Frost model) is often used to model the spread of an infectious disease. Suppose that at the beginning of period 1, the population consists of five diseased people (called infectives) and 95 healthy people (called
Mary Higgins is a freelance writer with enough spare time on her hands to play the stock market fairly seriously. Each morning she observes the change in stock price of a particular stock and decides whether to buy or sell, and if so, how many shares to buy or sell. Assume that on day 1, she has
Consider a drill press containing three drill bits. The current policy (called individual replacement) is to replace a drill bit when it fails. The firm is considering changing to a block replacement policy in which all three drill bits are replaced whenever a single drill bit fails. Each time the
Consider a drill press containing three drill bits. The current policy (called individual replacement) is to replace a drill bit when it fails. The firm is considering changing to a block replacement policy in which all three drill bits are replaced whenever a single drill bit fails. Each time the
Consider the following card game. The player and dealer each receive a card from a 52-card deck. At the end of the game the player with the highest card wins; a tie goes to the dealer. (You can assume that Aces count 1, Jacks 11, Queens 12, and Kings 13.) After the player receives his card, he
We are all aware of the fierce competition by mobile phone service companies to get our business. For example, AT&T is always trying to attract Verizon’s customers, and vice versa. Some even give away prizes to entice us to sign up for a guaranteed length of time. This example is based on one
The customer loyalty model in Example 11.9 assumes that once a customer leaves (becomes disloyal), that customer never becomes loyal again. Assume instead that there are two probabilities that drive the model, the retention rate and the rejoin rate, with values 0.75 and 0.15, respectively. The
Suppose an investor has the opportunity to buy the following contract (a stock call option) on March 1. The contract allows him to buy 100 shares of ABC stock at the end of March, April, or May at a guaranteed price of $50 per share. He can exercise this option at most once. For example, if he
A knockout call option loses all value at the instant the price of the stock drops below a given “knockout level.” Determine a fair price for a knockout call option when the current stock price is $20, the exercise price is $21, the knockout price is $19.50, the mean annual growth rate of the
A stock currently sells for $69. The annual growth rate of the stock is 15%, and the stock’s annual volatility is 35%. The risk-free rate is currently 5%. You have bought a six-month European put option on this stock with an exercise price of $70.a. Use @RISK to value this option.b. Use @RISK to
For the data in the previous problem, the following is an example of a butterfly spread: sell two calls with an exercise price of $50, buy one call with an exercise price of $40, and buy one call with an exercise price of $60. Simulate the cash flows from this portfolio.
If you own a stock, buying a put option on the stock will greatly reduce your risk. This is the idea behind portfolio insurance. To illustrate, consider a stock that currently sells for $56 and has an annual volatility of 30%. Assume the risk-free rate is 8%, and you estimate that the stock’s
Suppose you currently have a portfolio of three stocks, A, B, and C. You own 500 shares of A, 300 of B, and 1000 of C. The current share prices are $42.76, $81.33, and $58.22, respectively. You plan to hold this portfolio for at least a year. During the coming year, economists have predicted that
Based on Kelly (1956). You currently have $100. Each week you can invest any amount of money you currently have in a risky investment. With probability 0.4, the amount you invest is tripled (e.g., if you invest $100, you increase your asset position by $300), and, with probability 0.6, the amount
Change the new car simulation from Example 11.4 as follows. It is the same as before for years 1 through 5, including depreciation through year 5. However, the car might sell through year 10. Each year after year 5, the company examines sales. If fewer than 45,000 cars were sold that year, there is
Modify Example 11.8 so that the portfolio now contains 100 shares of stock and one put option on the stock with the same parameters as in the example. You can assume that the price of an option is $81. Discuss in a brief memo how this portfolio differs from the portfolio in the example.
A European put option allows an investor to sell a share of stock at the exercise price on the exercise data. For example, if the exercise price is $48, and the stock price is $45 on the exercise date, the investor can sell the stock for $48 and then immediately buy it back (that is, cover his
Referring to the retirement example in Example 11.6, rerun the model for a planning horizon of 10 years; 15 years; 25 years. For each, which set of investment weights maximizes the VAR 5% (the 5th percentile) of final cash in today’s dollars? Does it appear that a portfolio heavy in stocks is
Modify the model from Example 11.6 so that you use only the years 1975 to 2007 of historical data. Run the simulation for the same three sets of investment weights. Comment on whether your results differ in any important way from those in the example.
The simulation output from Example 11.6 indicates that an investment heavy in stocks produces the best results. Would it be better to invest entirely in stocks? Answer this by rerunning the simulation. Is there any apparent downside to this strategy?
Run the retirement model from Example 11.6 with a damping factor of 1.0 (instead of 0.98), again using the same three sets of investment weights. Explain in words what it means, in terms of the simulation, to have a damping factor of 1. Then comment on the differences, if any, between your
In the cash balance model from Example 11.5, is the $250,000 minimum cash balance requirement really “costing” the company very much? Answer this by rerunning the simulation with minimum required cash balances of $50,000, $100,000, $150,000, and $200,000. Use the RISKSIMTABLE function to run
In the cash balance model from Example 11.5, the timing is such that some receipts are delayed by one or two months, and the payments for materials and labor must be made a month in advance. Change the model so that all receipts are received immediately, and payments made this month for materials
Rerun the new car simulation from Example 11.4, but now use the RISKSIMTABLE function appropriately to simulate discount rates of 5%, 7.5%, 10%, 12.5%, and 15%. Comment on how the outputs change as the discount rate decreases from the value used in the example, 10%.
Rerun the new car simulation from Example 11.4, but now introduce uncertainty into the fixed development cost. Let it be triangularly distributed with parameters $600 million, $650 million, and $850 million. (You can check that the mean of this distribution is $700 million, the same as the cost
In Example 11.3, suppose you want to run five simulations, where the probability of passing inspection is varied from 0.6 to 1.0 in increments of 0.1. Use the RISKSIMTABLE function appropriately to do this. Comment on the effect of this parameter on the key outputs. In particular, does the
In Example 11.3, we commented on the 95th percentile on days required and the corresponding date to start production. If the company begins production on this date, then it is 95% sure to complete the order by the due date. We found this date to be August 2. Do you always get this answer? Find out
In Example 11.2, the gamma distribution was used to model the skewness to the right of the lifetime distribution. Experiment to see whether the triangular distribution could have been used instead. Let its minimum value be 0, and choose its most likely and maximum values so that this triangular
See how sensitive the results in Example 11.2 are to the following changes. For each part, make the change indicated, run the simulation, and comment on any differences between your outputs and the outputs in the example.a. The cost of a new camera is increased to $500.b. The warranty period is
Referring to Example 11.1, if the average bid for each competitor stays the same, but their bids exhibit less variability, does Miller’s optimal bid increase or decrease? To study this question, assume that each competitor’s bid, expressed as a multiple of Miller’s cost to complete the
In Example 11.1, the possible profits vary from negative to positive for each of the 10 possible bids examined.a. For each of these, use @RISK’s RISKTARGET function to find the probability that Miller’s profit is positive. Do you believe these results should have any bearing on Miller’s
If the number of competitors in Example 11.1 doubles, how does the optimal bid change?
1. Starting with the model from Case 2.2, you should replace all of the inputs with probability distributions. Specifically, based on their knowledge of the new product and the market, Jim and Catherine have suggested using the distributions with the parameters listed in the file C10_04.xlsx. Note
1. You should develop the simulation model just described. Only one @RISK output is required, the total retained impressions. Based on a run of 10 simulations (one for each number of ad agencies solicited) of 1000 iterations each, you should recommend to Joel whether his company should indeed start
1. Develop a simulation model for 52 weeks of operation at Ebony. Graph the inventory of soap over time. What is the total cost (inventory cost plus production change cost) for the 52 weeks?2. Run the simulation for 500 iterations to estimate the average 52-week cost with values of U ranging from
1. Egress management believes that a normal distribution is a reasonable model for the unknown demand in the coming year. What mean and standard deviation should Egress use for the demand distribution?2. Use a spreadsheet model to simulate 1000 possible outcomes for demand in the coming year. Based
At the beginning of each week, a machine is in one of four conditions: 1 = excellent; 2 = good; 3 5 average; 4 5 bad. The weekly revenue earned by a machine in state 1, 2, 3, or 4 is $100, $90, $50, or $10, respectively. After observing the condition of the machine at the beginning of the week, the
United Electric (UE) sells refrigerators for $400 with a one-year warranty. The warranty works as follows. If any part of the refrigerator fails during the first year after purchase, UE replaces the refrigerator for an average cost of $100. As soon as a replacement is made, another one-year
In the Walton Bookstore example, suppose that Walton receives no money for the first 50 excess calendars returned but receives $2.50 for every calendar after the first 50 returned. Does this change the optimal order quantity?
This is an extension of Case 2.1 from Chapter 2, so you should read that case first. It asks you to develop a spreadsheet model, using a 0-1 variable for each potential project, so that Cliff Erland, Manager for Project Development, can easily see the implications of approving any set of projects.
Suppose an investor has the opportunity to buy the following contract, a stock call option, on March 1. The contract allows him to buy 100 shares of ABC stock at the end of March, April, or May at a guaranteed price of $50 per share. He can exercise this option at most once. For example, if he
You have sued your employer for damages suffered when you recently slipped and fell on an icy surface that should have been treated by your company’s physical plant department. Your injury was sufficiently serious that you, in consultation with your attorney, decided to sue your company for

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Practical Management Science 5th Edition Wayne L. Winston, Christian Albright - Solutions

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