Solution Manual for Business Analytics, 4th Edition,

Jeffrey D. Camm, James J. Cochran, Michael J. Fry,

Jeffrey W. Ohlmann

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Solution Manual for Business Analytics, 4th Edition, Jeffrey D. Camm, James J. Cochran, Mich

Spreadsheet Models

Chapter 10
Spreadsheet Models

Solutions:

1. a.

b. Let q = production volume (quantity produced)

R = revenue per unit

FC = the fixed costs of production

MC = material cost per unit

LC = labor cost per unit

P(q) = total profit for producing (and selling) q units

P(q) = Rq − FC − ( MC )q − ( LC ) q

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 Spreadsheet Models

c.

d. Profit of –$5,200 is earned from a production volume of 12,000.

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2. a.

Breakeven appears in the interval of 20,000 to 30,000 units.

b.

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3. a.

With a demand of 3,500, there will be a loss of $20,000.

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b.

c.

For demand of 3,500, the breakeven access price is $51.71.

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d.

Scenario 4 yields the highest profit ($40,000) and scenario 2 the lowest (–$118,000).

4.

a.

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b.

Breakeven is 74.752 Nonmembers (or 75 Nonmembers).

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5.

a.

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b.

c.

The best case (highest) profit is $3,593.75 and the worst case (lowest) profit is $425.00.

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6. a.

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b.

c.

The access price of $325 maximizes profit.

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7. a. The screenshot below displays the annual calculations. The future value of Lindsay’s investments can
also be computed using the Excel function =FV(B6, 30, -B5); the negative sign for the annual investment
is required as the future value command assumes a stream of payments not deposits.

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b.

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8.

Part of the spreadsheet mode appears below.

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A portion of the data table appears below:

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9.
a. There are errors in the calculations of Rent in row 26 for Years 2 through 5. As shown below, instead
of the Inflation Rate ($B$9), the calculations for Rent in Years 2 through 5 use the Tax Rate ($B$8).

To correct this error, we must replace $B$8 with $B$9 in cells D26:G26 (highlighted above).

With these corrections, the new correct Total Discounted Cash Flow is $744,862.61.

b. The Scenario Summary shows that Scenario 1 gives the highest profit ($990,306) and scenario 3 the
lowest profit ($487,322). The range then is $990,306 – $487,322 = $502,984.

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10.

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11.
Error #1: The formula in cell C17 is:
=SUMPRODUCT(C8:G11,B22:F25)

but should be
=SUMPRODUCT(B8:F11,B22:F25)

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Error #2: The formula in cell G22 is:

=SUM(B22:E22)

but should be
=SUM(B22:F22)

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12.
a. A portion of the spreadsheet is shown below.

b. Solution shown in cells G14:H18

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13.
a. A portion of the spreadsheet is shown below.

b. See column I below.

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14. a.

b.

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15.

a.

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b. The lower the stock price, the more beneficial the put options. The options are worth nothing at a stock
price of $26 or above. There is a benefit from the put options to the overall portfolio for stock prices of
$24 or lower.

16.

a.

b. Part of the Data Table is shown below. Max profit occurs at Camera A price of $270 and Camera
B price of $390.

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17.

Key cell formulas:

18.

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To answer this question, use Goal Seek to find the additional payment that makes the given month balance
$0. The answers are shown below in J14:J16.

Part of the spreadsheet model is shown below:

Key formulas:

19. A portion of the spreadsheet is shown below:

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20. Floyd’s Bumpers total cost of the May shipments is $641,596.98. A portion of the spreadsheet is shown
below:

The table of DC assignments begins in cell Q5:

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The rows of the distance table are the customer zips and are located in I6:I1034. The distribution centers
are located in J4:N4.

The following functions are used for each column (and similarly for other rows):

B6: =VLOOKUP(A6,$Q$6:$R$1034,2)

C6: =MATCH(A6,$I$6:$I$1034,0)

D6: =MATCH(B6,$J$4:$N$4,0)

E6: =INDEX($J$6:$N$1034,C6,D6)

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F6: =($C$2+$G$2)*E6

21. A portion of the spreadsheet is shown below:

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We use goal seek to find the discount rate that results in an NPV of $25,995:

The result is 10.9%. So effectively the dealer is making 10.9% interest on the loan of $25,995.

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Chapter 10
Spreadsheet Models

Case Problem: Tim’s Retirement Planning

We take as the base case for Tim’s retirement planning problem the parameter settings below:

While there are many ways to model this problem, any sound approach will have the following characteristics:

There spreadsheet model will have a parameters section and a model section.

There will be essentially two modules for calculating the age when funds run out and the balance at the beginning of
retirement. These are a pre-retirement module and a post-retirement module. During the pre-retirement time, money
is accumulated through salary-based contributions from Tim, additional pre-tax contributions from Tim, the school’s
contribution to Tim’s account, and returns on the investment. During the post-retirement time, spending is taken out
of the account, taxes must be paid on the amount withdrawn, and returns on investment accrue into the account.

We have made a number of assumptions including the following:

All input parameters will be constant over time.

All contributed funds come in at the end of the year, so that those funds do not earn a return during that year.
After retirement, a return is made on the beginning balance for that year and all expenses are deducted at the end of
the year.

Below we show each portions of each individual module. Note that we inflate the salary by the appropriate amount
each year (column C) and we include the return on investment along with the other cash flows into the fund
(Column H).

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Note that spending is inflated in (Column L). We use the INDEX function in cell N27 to find the beginning balance
based on the year of retirement. We use an IF statement to determine if funds are still available or not. In cell Q27,
we use an INDEX function with the MATCH function to find the first occurrence of a one in column P and return
the age of Tim when this occurs.

There are many factors at work here and student responses may vary. However, the impact of retirement age and
additional pre-tax contributions is specifically requested. A data table as shown below indicates how age when funds
run out varies with these inputs.

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Graphically, using just the even ages we have:

Age When Funds Run Out

95

90 70
Age When Funds Run Out

68
85 66
64
80
62
75 60

70

65
0 2000 4000 6000 8000 10000 12000 14000 16000 18000
Additional Pre-tax Contributions

Obviously as retirement age and pre-tax contributions increase, so too will the age when funds run out. For a given
age, contributing the maximum pre-tax additional contributions will earn Tim an additional 4 to 6 years. Delaying
retirement by 5 years (from 65 to 70) will earn Tim an additional two to three years.

While retirement age and pre-tax additional contributions are choices Tim can make, many other factors will have
an impact on his retirement account. For example, the rate of inflation and the return on the pre-retirement funds are
variables that Tim cannot directly control. The following table and chart below show the impact of these factors on
the age when funds run out.

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Solution Manual for Business Analytics, 4th Edition, Jeffrey D. Camm, James J. Cochran, Mich

Spreadsheet Models

Age When Funds Run Out

110
Pre-Retirement Return
Age whenFunds Run Out

100
0

90 0.01
0.02
80
0.03

70 0.04
0.05
60
0 0.02 0.04 0.06 0.08 0.1
Inflation

As the chart shows, even moderate inflation can have a major impact on how long the fund lasts after retirement.

Contributing more or strong returns can help mitigate the impact of inflation.

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