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1 Question :The worksheet model contain certain parameters or inputs. Calcualte the Breakeven Sales?
2 Nowlin Plastics
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4 Fixed Cost $3,000
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6 Variable Cost Per Unit $2
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8 Selling Price Per Unit $5
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11 Models
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13 Production Volume 800
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15 Total Cost
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17 Total Revenue
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19 Total Profit (Loss) $0
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Question 1:The worksheet model contain the following assumptions about certain parameters or inputs to the model in ou
·         The price for which a glass of lemonade is sold
·         The unit cost of producing a glass of lemonade
·         The sensitivity of demand for lemonade to price charged
·         The annual fixed cost of running a lemonade stand
Based on input assumptions, compute the following outputs:
·         Annual profit
·         Annual revenue
·         Annual variable cost

Solution 1:
price 4.00
demand 29000.00 (Assumed)
unit cost 0.45
fixed cost 45000.00
revenue
variable cost
profit

Question 2: Suppose that we want to know how changes in price (for example from $1.00 through $4.00 in $0.25
increments) affect annual profit, revenue, and variable cost. With a one-way data table, we can determine how
changing one input changes any number of outputs.

Solution 2: One Way Table

profit revenue variable cost
price 0.00 0.00 0.00
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00

Question 3: Suppose we want to determine how annual profit varies as price varies from $1.50 through $5.00 (in $0.25
increments) and unit cost varies from $0.30 through $0.60 (in $0.05 increments). Here we are changing two inputs. With a
way data table, we can determine how changing two inputs changes a single output.
Solution 3 :Two Way Table
unit cost
0.00 0.30 0.35 0.40 0.45 0.50
1.50
1.75
2.00
2.25
2.50
2.75
3.00
price 3.25
3.50
3.75
4.00
4.25
4.50
4.75
5.00
ters or inputs to the model in our lemonade example:

revenue 116000.00
variable cost 13050.00
profit 57950.00

through $4.00 in $0.25

e can determine how

4 57950 116000 13050

1.50 through $5.00 (in $0.25

are changing two inputs. With a two-
0.55 0.60

5 49000 48000 47000 46000 45000

44000 43000
Question: Suppose we want to create the following four scenarios related to NPV of a Car
Scenarios
Inputs Best Case Most Likely Case Worst Case Current Values
Year1sales 20000 10000 5000 12000
Sales growth 20% 10% 2% 5%
Year1price 10 7.5 5 7.5
For Each Scenario (varying 3 inputs) we want to look at Each Years Aftertax Profits & NPV?

Assume the Following Current Values

taxrate 0.40
Year1sales 12000.00
Sales growth 0.05
Year1price 7.50
Year1cost 6.00
intrate 0.15
costgrowth 0.05
pricegrowth 0.03

Calculations of Each Years After Tax Profits & NPV

Year 1 2 3 4 5
Unit Sales 12000.00 12600.00 13230.00 13891.50 14586.08
unit price 7.50 7.73 7.96 8.20 8.44
unit cost 6.00 6.30 6.62 6.95 7.29
Revenues 90000.00 97335.00 105267.80 113847.13 123125.67
Costs 72000.00 79380.00 87516.45 96486.89 106376.79
Before Tax Profits 18000.00 17955.00 17751.35 17360.24 16748.88
Tax 7200.00 7182.00 7100.54 6944.10 6699.55
Aftertax Profits 10800.00 10773.00 10650.81 10416.15 10049.33

NPV 35492.08
35492.078 226892.67 32063.826 -13345.75
Problem DTH1
Course of Action
Product A Product B Product C
Fix Cost 25000 35000 53000
States of Nature Var Cost 12 9 7 p
Poor Demand 3000
Moderate Demand 7000
High Demand 11000
EMV

Selling Price 25

Prepare a Payoff Matrix?

Problem DTH1**
A firm manufactures three types of products. The fixed & variable costs are given below:
---------------------------------------------------------------------------------------------
Fixed cost (Rs) Variable cost per unit (Rs)
---------------------------------------------------------------------------------------------
Product A 25,000 12
Product B 35,000 9
Product C 53,000 7
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The likely demand (units) of the product is given below:
Poor demand 3000
Moderate demand 7000
High demand 11000
If the sale price of each type of product is Rs 25, then prepare the payoff matrix.
Problem DTH2
Course of Action Course of Action
States of Nature Prob Company A Company B Company A Company B
Bull Market 0.6 0.5 0.15
Bear Market 0.4 -0.2 0.05
Investment 10000
EMV =
Maximum Expected Payoff
Decision: Select

Where will you invest your money?

Problem DTH2**
Suppose you want to invest Rs 10,000 in the stock market by buying shares in one of the two
companies A & B. Shares in company A are risky, but it could yield a 50% return on investment
during the next year. If the stock market conditions are not favorable, (i.e. “bear” market) the
stock may lose 20% of its value. Company B provides safe investments with 15% return in a
“bull” market and only 5% in a bear market. Predictions are 60% chance for a bull market and
40% for a bear market.
1. Where should you invest your money?
2. Use a graph to show how change in probability affects optimum strategy?
Problem DTH3

States of Nature Course of Action

Demand/day Purchase per Day
Prob. 7 8 9 10
7 0.1 140 130 120 110
8 0.2 140 160 150 140
9 0.4 140 160 180 170
10 0.3 140 160 180 200

Selling Price 30
Purchase Price 10
Unsold -10

EMV =
Max Expct Payoff
Decision: Select

How many units should be purchased per day?

Problem DTH4

States of Nature Course of Action

Demand/day Purchase per Day
Prob. 10 15 20 25 PijMax
10 0.28 50 -5 -60 -115
15 0.35 20 75 20 -35
20 0.17 -10 45 100 45
25 0.2 -40 15 70 125

Selling Price 20
Purchase Price 15
Good will loss -6
Unsold Loss -11

EMV =
Max Expct Payoff
Decision: Select

EPPI
EVPI