Case Study 3 Starting Right Corporation: Payoff Table

Case Study 3 Starting Right Corporation
Payoff Table
State of Nature
Alternative
Favorable
unfavorable
Alt2 (corporate bond)
55273
Alt3 (preferred stock)
120000
Alt4 (common stock)
240000
Alt 1 (Do nothing)
Max
Equally
Likely
Min
Hurwicz
0.11
$0
-10000
55273
-10000
$22,637 -2819.963908
-15000
120000
-15000
$52,500
-150
-30000
240000
-30000
$105,000
-300
Decision Criterion
Maximax
Alt4 (common stock)
Minimax
Alt 1 (Do nothing)
Equal Likelihood
Alt4 (common stock)
Hurwicz
Alt 1 (Do nothing)
Maximum regret
Regret Table
Favorable
Unfavorable
240000
Alt 1 (Do nothing)
240000
240000
Alt4 (common stock)
Alt2 (corporate bond)
184727
10000
184727
EOL
Not Applicable
Alt3 (preferred stock)
120000
15000
120000
EV
Not Applicable
Alt4 (common stock)
30000
30000
EVPI
Not Applicable
Alternative
Max
1. I recommend that Sue Pansky may use the maximum decision approach. She is very conservative and is a risk avoider, otherwise she should
do nothing and not consider to have an investment in Starting Right.
2. Ray Cahn should use a probability of success of 0.11. The best decision is to do nothing.
3. I recommend that Lila Battle should remove alternative 1 (do nothing) and use the maximin criterion. The result is to make investment
in the corporate bonds.
4. George Yates should use the equally likely criterion and the best decision is to invest in Common stock.
5. I recoomend that Peter Metarko may have an investment in Common Stock. He is a risk seeker and optimistic about the market.
6. Julia Day can remove the stock alternatives and still offer alternatives to risk seekers(common stock) and risk avoiders (doing nothing or
investing in corporate bond)
Case Study 4 North-South Airlines

Northern Airline Data
Southern Airline Data
Airframe Cost
Engine Cost
Average Age
Airframe Cost
Engine Cost
Average Age
Year
per Aircraft
per Aircraft
(Hours)
Year
per Aircraft
per Aircraft
(Hours)
2001
51.8
43.49
6,512
2001
13.29
18.86
5,107
2002
54.92
38.58
8,404
2002
25.15
31.55
8,145
2003
2004
69.7
51.48
11,077
2003
32.18
40.43
7,360
68.9
58.72
11,717
2004
31.78
22.1
5,773
2005
63.72
45.47
13,275
2005
25.34
19.69
7,150
2006
84.73
50.26
15,215
2006
32.78
32.58
9,364
2007
78.74
79.6
18,390
2007
35.56
38.07
8,259
SST = (Y-)
Sum of the squares total (SST) measures the total variability in Y about the mean
SSE =
Sum of squares error measures tha varianbility in Y about the regression line.
=(Y-)
North-South Airlines Case Study

Northern Airframe
Data
Period
IfIfthis
thisisistrend
trendanalysis
analysisthen
thensimply
simplyenter
enterthe
thepast
pastdemands
demandsin
inthe
thedemand
demandcolumn.
column.IfIfthis
thisisiscausal
causalregression
regressionthen
thenenter
enterthe
they,x
y,xpairs
pairswith
withyy
first
firstand
andenter
enteraanew
newvalue
valueof
ofxxat
atthe
thebottom
bottomin
inorder
orderto
toforecast
forecasty.y.
Forecasts and Error Analysis

Dep
Ind Variable
Variable (y)
(x)
Forecast
Error
Absolute
Squared
Abs Pct Err
Year 1
51.8
6,512
53.02
-1.22
1.22
1.49
2.36%
Year 2
54.92
8,404
57.94
-3.02
3.02
9.10
5.49%
Year 3
69.7
11,077
64.88
4.82
4.82
23.20
6.91%
Year 4
68.9
11,717
66.55
2.35
2.35
5.54
3.42%
Year 5
63.72
13,275
70.60
-6.88
6.88
47.28
10.79%
Year 6
84.73
15,215
75.64
9.09
9.09
82.67
10.73%
Year 7
78.74
18,390
83.89
-5.15
5.15
26.51
6.54%
0.00
32.52
195.79
46.24%
Total
Intercept
Slope
Forecast
36.0968244
Average
0.0025988
36.1176148
0.00
4.65
27.97
6.61%
Bias
MAD
MSE
MAPE
SE
6.26
Correlation
0.88
Coefficient of determination
0.77
Regression Line
90
80
Dependent Variable (Y)
70
y =0.0026x + 36.097
60
50
40
30
20
10
0
4,000
8,000
12,000
16,000
independent Variable (X)
20,000

Northern Engine
Data

Dep
Ind Variable
IfIfPeriod
this
column.
causal
then
the
yyfirst
and
Forecast
Absolute
Squared
Abs
Pct
Err
thisisistrend
trendanalysis
analysisthen
thensimply
simplyenter
enterthe
thepast
pastdemands
demandsin
inthe
thedemand
demand
column.IfIfthis
thisisisError
causalregression
regression
thenenter
enter
they,x
y,xpairs
pairswith
with
first
and
Variable
(y)
(x) toforecast
enter
enteraanew
newvalue
valueof
ofxxat
atthe
thebottom
bottomin
inorder
orderto
forecasty.y.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
43.49
6,512
38.58
8,404
51.48
11,077
58.72
11,717
45.47
13,275
50.26
Year 7
79.6
Intercept
20.5712256
Slope
0.00264336
Forecast
20.5923724
15,215
37.78
42.79
49.85
51.54
55.66
60.79
5.71
-4.21
1.63
7.18
-10.19
-10.53
5.71
4.21
1.63
7.18
10.19
10.53
32.55
17.69
2.65
51.50
103.87
110.88
13.12%
10.90%
03.16%
12.22%
22.41%
20.95%
18,390
69.18
10.42
10.42
108.52
13.09%
0.00
0.00
49.86
7.12
427.67
61.10
95.86%
13.69%
Total
Average
Bias
MAD
MSE
SE
Correlation
Regression line
dependent variable (y)
90
80
70
60
50
40
30
20
10
0
4,000
y =0.0026x + 20.571
8,000
12,000
16,000
independent variable (X)
20,000
MAPE
9.25
0.78
0.61
North-South Airlines Case IfStudy

Ifthis
thisisistrend
trendanalysis
analysisthen
thensimply
simplyenter
enterthe
thepast
pastdemands
demandsin
inthe
thedemand
demandcolumn.
column.IfIfthis
thisisiscausal
causalregression
regressionthen
thenenter
enterthe
they,x
y,xpairs
pairswith
withyyfirst
first
and
andenter
enteraanew
newvalue
valueof
ofxxat
atthe
thebottom
bottomin
inorder
orderto
toforecast
forecasty.y.
Southern Airframe
Data
Period

Dep
Ind
Variable (y) Variable(x)
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
13.29
5,107
25.15
8,145
32.18
7,360
31.78
5,773
25.34
7,150
32.78
Year 7
35.56
Intercept
4.59663389
Slope
0.00320387
Forecast
4.62226485
Forecast
Error
Absolute
Squared
Abs Pct Err
9,364
20.96
30.69
28.18
23.09
27.50
34.60
-7.67
-5.54
4.00
8.69
-2.16
-1.82
7.67
5.54
4.00
8.69
2.16
1.82
58.81
30.72
16.02
75.47
4.68
3.30
57.70%
22.04%
12.44%
27.34%
08.54%
05.55%
8,259
31.06
4.50
4.50
20.27
12.66%
0.00 34.38583821 209.2819506

0.00
4.912262601 29.8974215
146.26%
20.89%
Total
Average
Bias
MAD
SE
Correlation
MSE
MAPE
6.4696514679
0.624867994
0.39046001
Regression line
40
35
30
25
20
y =.0032x + 4.596
15
10
5
0
4,000
5,000
6,000
7,000
8,000
independent variable (x)
9,000 10,000

Southern Engine
Data
Period

Dep
Variable(y)
Ind
Variable(x)
Forecast
Error
Absolute
Squared
Abs Pct Err
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
18.86
enter
demands
demand
IfIfthis
regression
20.09
-1.23
1.23
1.52
06.53%
5,107IfIfthis
thisisistrend
trendanalysis
analysisthen
thensimply
simply
enterthe
thepast
past
demandsin
inthe
the
demandcolumn.
column.
thisisiscausal
causal
regressionthen
thenenter
enterthe
they,x
y,xpairs
pairswith
withyyfirst
firstand
and
31.55
bottom in order to forecast y.

-0.89
8,145enter a new value of x at the 32.44
Year 7
Intercept
Slope
Forecast
enter a new value of x at the bottom in order to forecast y.
40.43
7,360
22.1
5,773
19.69
7,150
32.58
9,364
29.25
22.80
28.40
37.40
38.07
8,259
32.91
0.89
11.18
0.70
8.71
4.82
0.79
124.99
0.49
75.80
23.21
02.83%
27.65%
03.16%
44.22%
14.79%
5.16
5.16
26.68
13.57%
0.00
0.00
32.69
4.67
253.47
36.21
112.74%
16.11%
Total
Average
-0.67085414
0.00406537
-0.63833122
11.18
-0.70
-8.71
-4.82
Bias
MAD
SE
Correlation
MSE
MAPE
7.1199914045
0.6781750964
0.4599214614
Regression line
45
40
35
30
25
20
y =.0041x - .6709
15
10
5
0
4,000
6,000
8,000
independent variable (x)
10,000

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Case Study 3 Starting Right Corporation

Alt2 (corporate bond)

Alt3 (preferred stock)

Alt4 (common stock)

Alt 1 (Do nothing)

Alt4 (common stock)

Alt 1 (Do nothing)

Alt4 (common stock)

Alt 1 (Do nothing)

Alt 1 (Do nothing)

Alt4 (common stock)

Alt2 (corporate bond)

Alt3 (preferred stock)

Alt4 (common stock)

Case Study 4 North-South Airlines

Southern Airline Data

North-South Airlines Case Study

Forecasts and Error Analysis

Abs Pct Err

independent Variable (X)

North-South Airlines Case Study

Forecasts and Error Analysis

dependent variable (y)

independent variable (X)

North-South Airlines Case IfStudy

Forecasts and Error Analysis

Abs Pct Err

0.00 34.38583821 209.2819506

independent variable (x)

North-South Airlines Case Study

Forecasts and Error Analysis

Abs Pct Err

bottom in order to forecast y.

enter a new value of x at the bottom in order to forecast y.

independent variable (x)

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