Problem Set 6 – Mixed Set

1. Parfum du Lys
Parfum du Lys produces cleaning products for home use. This is a highly competitive market, and
the company continually struggles to increase its small market share. Management has decided to
undertake a major new advertising campaign that will focus on the following three key products:
• A spray prewash stain remover
• A liquid laundry detergent
• A powder laundry detergent
This campaign will use both television and the print media. A commercial has been developed to
run on national television that will feature the liquid detergent. The advertisement for the print
media will promote all three products and will include cents-off coupons that consumers cab use
to purchase the products at reduced prices. The general goal is to increase the sales of each of these
products over the next year by a significant percentage over the present year. Specifically,
management has set the following goals for the campaign:
• Sales of the satin remover should increase by at least 3%
• Sales of the liquid detergent should increase by at least 18%
• Sales of the powder detergent should increase by at least 4%
The table below shows the estimated increase in sales for each unit of advertising on the respective
outlets. A unit is a standard block of advertising that Parfum du Lys commonly purchases. The
reason for -1% for the powder detergent in the Television column is that the TV commercial
featuring the new liquid detergent will take away some sales from the powder detergent. The
bottom row of the table shows the cost per unit of advertising for each of the two outlets.
Management’s objective is to determine how much to advertise in each medium to meet the sales
goals at a minimum total cost. Using an Excel model help management to take a decision.
Increase in sales per unit of advertising
Product Television Print Media Minimum Required
Increase
Stain remover 0% 1% 3%
Liquid detergent 3% 2% 18%
Powder detergent -1% 4% 4%
Unit cost $1 million $2 million

Suppose the data given in the above table has now been changed as shown below. What changes,
if any, do you need to do in the model? How has the decision changed?
 Increase in sales per unit of advertising
Product Television Print Media Minimum Required
Increase
Stain remover 0% 1.5% 3%
Liquid detergent 3% 4% 18%
Powder detergent -1% 2% 4%
Unit cost $1 million $2 million

2. Back Savers
Back Savers is a company that produces backpacks primarily for students. They are considering
offering some combination of two different models—the Collegiate and the Mini. Both are made
out of the same rip-resistant nylon fabric. Back Savers has a long-term contract with a supplier of
the nylon and receives a 5000 square-foot shipment of the material each week. Each Collegiate
requires 3 square feet while each Mini requires 2 square feet. Sales forecasts indicate that at most
1000 Collegiates and 1200 Minis can be sold per week. Each Collegiate requires 45 minutes of
labor to produce and generates a unit profit of $32. Each Mini requires 40 minutes of labor and
generates a unit profit of $24. Back Savers has 35 laborers that each provides 40 hours of la bor per
week. Management wishes to decide the quantity of each type of backpack to produce per week.
Formulate an Excel model to help with this decision.
3. BlueJet Airlines
BlueJet Airlines is a small regional company that specializes in short flights in small passenger
airplanes. The company has been doing well and management has decided to expand its operations.
The basic issue facing management now is whether to purchase more small airplanes to add some
new short flights or to start moving into the national market by purchasing some large airplanes
for new cross-country flights (or both). Many factors will go into management’s final decision,
but the most important one is which strategy is likely to be most profitable.
The table below shows all the related data. The estimated net annual profit (inclusive of capital
recovery costs) from each type of airplane purchased has been given. The table also gives the
purchase cost per airplane and notes that the total amount of capital available for airplane purchases
is $250 million. The management does not want to purchase more than five small airplanes because
of limited possibilities for adding lucrative short flights, wh ereas they have not specified a
maximum number for large airplanes (other than that imposed by the limited capital available).
Build an Excel model to help the management decide how many airplanes of each type should be
purchased to maximize the total net annual profit.
Small Airplane Large Airplane Capital Available
Net annual profit per $7 million $22 million
airplane
Purchase cost per $25 million $75 million $250 million
airplane
Maximum purchase 5 No maximum
quantity
4. Alice’s Retirement Plan
Alice wants to start planning for her retirement. She wants to decide how much she needs to put
aside every month. As a base case, she wants to determine how much she will have saved for
retirement by depositing $1000 per month, every month for the next 30 years at a monthly interest
rate of 0.6% per cent.
(1 + 𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒)𝑀𝑜𝑛𝑡ℎ𝑠 𝑈𝑛𝑡𝑖𝑙 𝑅𝑒𝑡𝑖𝑟𝑒𝑚𝑒𝑛𝑡 − 1
𝑆𝑎𝑣𝑖𝑛𝑔𝑠 𝑎𝑡 𝑟𝑒𝑡𝑖𝑟𝑒𝑚𝑒𝑛𝑡 = 𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝐷𝑒𝑝𝑜𝑠𝑖𝑡 × [ ]
𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒

a. Build a spreadsheet model that Alice can use to calculate her retirement savings in 30 years.
b. Build a one-way data table to evaluate the amount Alice will have saved for retirement if she
deposits the following amounts each month: $750, $1000, $1250, $1500.
c. Build a horizontal one-way data table to evaluate the amount Alice will have saved for retirement
in the base case but with the savings interest rate being uncertain , with the following possible
values: 0.4%, 0.5%, 0.6%, 0.7%, 0.8%.
d. Build a two-way data table to evaluate how much Alice will have saved in 30 years at various
monthly deposits (from $500 to $1500, in steps of $250) and the interest rates (from 0.5% to 1.5%,
in steps of 0.25%).
e. Build three scenarios as follows and evaluate the savings at the end of 30 years for all three
scenarios with the help of the scenario manager:
Scenario Interest Rate Deposit Amount
Optimistic 1% $1500
Pessimistic 0.4% $750
Likely 0.5% $1000

5. Building a House
I am going to build a new house. I need to decide how much to borrow for building the house. The
repayment period is 15 years. I am unsure about the annual interest rate I will receive. Build a
spreadsheet model and determine how my monthly payments will depend on the amount borrowed
and the annual interest rate. You can assume a base case borrowing amount of $450,000 and
interest rate of 5%.