Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W.

Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Solution and Answer Guide

JEFFREY D. CAMM, JAMES J. COCHRAN, MICHAEL J. FRY, JEFFREY W. OHLMANN, BUSINESS
ANALYTICS, 2024, 9780357902202; C HAPTER 12: SPREADSHEET MODELS

TABLE OF CONTENTS
Problems...............................................................................................1
Case Problem: Retirement Plan.............................................................47

PROBLEMS
1. Profit Model for Electronics Company. Cox Electric makes electronic components
and has estimated the following for a new design of one of its products:

Fixed cost = $10,000

Material cost per unit = $0.15
Labor cost per unit = $0.10
Revenue per unit = $0.65

These data are given in the file coxelectric. Note that fixed cost is incurred regardless of
the amount produced. Per-unit material and labor cost together make up the variable
cost per unit. Assuming that Cox Electric sells all that it produces, profit is calculated by
subtracting the fixed cost and total variable cost from total revenue. LO 1, 2
a. Build an influence diagram that illustrates how to calculate profit.
b. Using mathematical notation similar to that used for Nowlin Plastics, give a
mathematical model for calculating profit.
c. Implement your model from part (b) in Excel using the principles of good
spreadsheet design.
d. If Cox Electric makes 12,000 units of the new product, what is the resulting profit?

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 1
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Solutions:
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

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 2
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

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

2. Breakeven Volume. Use the spreadsheet model constructed to answer Problem 1

to answer this problem. LO 3, 4, 5, 7
a. Construct a one-way data table with production volume as the column input and
profit as the output. Breakeven occurs when profit goes from a negative to a
positive value; that is, breakeven is when total revenue = total cost, yielding a
profit of zero. Vary production volume from 0 to 100,000 in increments of 10,000.
In which interval of production volume does breakeven occur?
b. Use Goal Seek to find the exact breakeven point. Assign Set cell: equal to the
location of profit, To value: = 0, and By changing cell: equal to the location of
the production volume in your model.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 3
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Solutions:
a.

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

b.

3. E-book Profit/Loss. Eastman Publishing Company is considering publishing an

electronic textbook about spreadsheet applications for business. The fixed cost of
manuscript preparation, textbook design, and web site construction is estimated to
be $160,000. Variable processing costs are estimated to be $6 per book. The
publisher plans to sell single-user access to the book for $46. LO 1, 2, 3
a. Create an influence diagram to calculate the profit/loss.
b. Build a spreadsheet model to calculate the profit/loss for a given demand. What
profit can be anticipated with a demand of 3,500 copies?
c. Use a data table to vary demand from 1,000 to 6,000 in increments of 200 to
assess the sensitivity of profit to demand.

Solutions:
a.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 4
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 5
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

b.

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

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 6
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

c.

4. E-book Profit/Loss (revisited). Consider the Profit/Loss problem presented in

problem 3. LO 5, 6
a. Use Goal Seek to determine the access price per copy that the publisher must
charge to break even with a demand of 3,500 copies.
b. Consider the following scenarios:

Scenario Scenario Scenario Scenario Scenario

1 2 3 4 5
Variable $6 $8 $12 $10 $11
Cost/
Book
Access Price $46 $50 $40 $50 $60
Demand 2,500 1,000 6,000 5,000 2,000

For each of these scenarios, the fixed cost remains $160,000. Use Scenario Manager
to generate a summary report that gives the profit for each of these scenarios. Which
scenario yields the highest profit? Which scenario yields the lowest profit?

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 7
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Solutions:
a.

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

b.

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

5. Cash Flow Planning for a Microbrewery. Over the Rhine Brewery (ORB) is
conducting a cash flow analysis for the coming year. The first quarter of the calendar
year is typically the slowest time for ORB. For each month of the first quarter (January,
February, and March), the estimate for the sales of beverages and food is $60,000 per
month. Using the first quarter as the base period, ORB has analyzed historical data and
has established quarterly multipliers for each of the other three quarters of the year to
estimate monthly sales in those quarters. The multiplier for months in the first quarter
is 1.0 because this is the base period. The other multipliers are 1.5 for the second
quarter, 3.2 for the third quarter, and 2.8 for the fourth quarter. So, for example, the
estimate for beverage and food sales in the month of November, since November is in
the fourth quarter, would be (2.8)($60,000) = $168,000. ORB also sells merchandise
such as hats and T-shirts. In a given month, revenue from merchandise is estimated to

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 8
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

be about 8% of the sales from beverage and food. Material cost is 23% of total sales
revenue and labor cost is 45% of total sales revenue. ORB pays $3,000 per month for
rent and $1,300 per month for utilities. ORB borrowed money through a small-business
loan during its startup and currently makes $1,200 monthly loan payments (70% of the
payment is interest and 30% is principal). The interest of the loan is tax deductible, but
the principal portion of the loan is not. ORB’s tax rate is 23.6%. Assume ORB begins
with a zero cash balance at the beginning of the year. LO 1, 2, 5
a. Build an influence diagram for ORB’s monthly cash flow problem for the coming
year.
b. Use the influence diagram from part (a) to construct a spreadsheet model. What
is the ending total cash balance at the end of the year?
c. ORB would like to increase the sales of merchandise. Use Goal Seek to find the
percentage of food and beverage sales that revenue from merchandise would
have to be to provide an end-of-year cash balance of $400,000.

Solutions:
a.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 9
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

b.

Total cash balance at the end of the year is $352,535.23

c. 20.7%

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 10
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

6. Breakeven Analysis for a Symposium. The University of Cincinnati Center for

Business Analytics is an outreach center that collaborates with industry partners on
applied research and continuing education in business analytics. One of the programs
offered by the center is a quarterly Business Intelligence Symposium. Each
symposium features three speakers on the real-world use of analytics. Each
corporate member of the center (there are currently 10) receives five free seats to
each symposium. Nonmembers wishing to attend must pay $75 per person. Each
attendee receives breakfast, lunch, and free parking. The following are the costs
incurred for putting on this event: LO 1, 2, 4, 5

Rental cost for the auditorium $150

Registration processing $8.50 per person
Speaker costs 3@$800 = $2,400
Continental breakfast $4.00 per person
Lunch $7.00 per person
Parking $5.00 per person
a. Create an influence diagram of how to calculate profit/loss.
b. Use your influence diagram from part (a) to build a spreadsheet model that
calculates a profit or loss based on the number of nonmember registrants.
c. Use Goal Seek to find the number of nonmember registrants that will make the
event break even.

Solutions:
a.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 11
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

b.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 12
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

c.

Breakeven is 74.752 Nonmembers (or 75 Nonmembers).

7. Scenario Analysis for Profitability of a Symposium. Consider again the scenario

described in Problem 6. LO 2, 3, 6, 7
a. The Center for Business Analytics is considering a refund policy for no-shows. No
refund would be given for members who do not attend, but nonmembers who do
not attend will be refunded 50% of the price. Extend the model you developed in
Problem 4 for the Business Intelligence Symposium to account for the fact that,
historically, 25% of members who registered do not show and 10% of registered
nonmembers do not attend. The center pays the caterer for breakfast and lunch
based on the number of registrants (not the number of attendees). However, the
center pays for parking only for those who attend. What is the profit if each
corporate member registers their full allotment of tickets and 127 nonmembers
register?
b. Use a two-way data table to show how profit changes as a function of number of
registered nonmembers and the no-show percentage of nonmembers. Vary the
number of nonmember registrants from 80 to 160 in increments of 5 and the
percentage of nonmember no-shows from 10% to 30% in increments of 2%.
c. Consider three scenarios:

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 13
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Base Case Worst Case Best Case

% of Members Who Do Not Show 25.0% 50% 15%
% of Nonmembers Who Do Not 10.0% 30% 5%
Show
Number of Nonmember 130 100 150
Registrants

All other inputs are the same as in part (a). Use Scenario Manager to generate a
summary report that gives the profit for each of these three scenarios. What is the
highest profit? What is the lowest profit?

Solutions:
a.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 14
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

b.

c.

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

8. E-book Profit/Loss (Revisited). Consider again Problem 3. Through a series of

web-based experiments, Eastman has created a predictive model that estimates
demand as a function of price. The predictive model is demand = 4,000 – 6p, where p
is the price of the e-book. LO 2, 3, 5, 7
a. Update your spreadsheet model constructed for Problem 3 to take into account
this demand function.
b. Use Goal Seek to calculate the price that results in breakeven.
c. Use a data table that varies price from $50 to $400 in increments of $25 to find
the price that maximizes profit.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 15
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Solutions:
a.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 16
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

b.

c.

The access price of $325 maximizes profit.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 17
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

9. Retirement Planning. Lindsay is 25 years old and has a new job in web
development. Lindsay wants to make sure that they are financially sound in 30 years.
So, Lindsay plans to invest the same amount into a retirement account at the end of
every year for the next 30 years. Note that because Lindsay invests at the end of the
year, there is no interest earned on the contribution for the year in which Lindsay
contributes. LO 2, 3
a. Construct a spreadsheet model that will calculate Lindsay’s retirement savings
given a fixed annual amount saved and a fixed annual interest rate of return.
b. Develop a two-way table for annual investment amounts of $5,000 to $20,000 in
increments of $1,000 and for returns of 0% to 12% in increments of 1%.

Solutions:
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.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 18
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

b.

10. Retirement Planning with Net Present Value. Consider again Lindsay’s
investment in Problem 9. The real value of Lindsay’s account after 30 years of
investing will depend on inflation over that period. In the Excel function =NPV(rate,
value1, value2, . . .), rate is called the discount rate, and value 1, value 2, etc. are
incomes (positive) or expenditures (negative) over equal periods of time. Update
your model from Problem 9 using the NPV function to get the net present value of
Lindsay’s retirement fund. Construct a data table that shows the net present value of
Lindsay’s retirement fund for various levels of return and inflation (discount rate).
Use a data table to vary the return from 0% to 12% in increments of 1% and the
discount rate from 0% to 4% in increments of 1% to show the impact on the net
present value. Hint: Calculate the total amount added to the account each year, and
discount that stream of payments using the NPV function. LO 2, 3, 7

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 19
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Solutions:
Part of the spreadsheet mode appears below.

A portion of the data table appears below:

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 20
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

11. Powerball Winner. Californian Vinh Nguyen won the Powerball Jackpot and was the
sole winner. The jackpot was $228,467,735. Nguyen had the option of taking a lump
sum of $134 million or an annuity that paid 30 annual payments such that the
payments increased by 5% each year and added up to the total jackpot of
$228,467,735. Nguyen opted for the annuity. The tax rate is 39% and inflation is
expected to be 3%. LO 2, 5, 7
a. Construct a spreadsheet model and use Goal Seek to calculate the payment
schedule, the amount Nguyen would receive each year for the annuity. What is
the amount of the thirtieth payment?
b. Use the Excel NPV function to determine the net present value (NPV) of Nguyen’s
30 payments after taxes. Assume the first annual payment occurs immediately.
Hint: The Excel function NPV is discussed in problem 10.
c. Compare the NPV of the annuity to the lump sum after taxes (assuming lump sum
payment occurs immediately)
d. Use Goal Seek to determine the inflation rate that makes the NPV of the annuity
equal to the net value of the lump sum after taxes.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 21
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Solutions:
a.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 22
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

The amount of the thirtieth payment is $14,154,432.

b. $84,325,506

c. NPV after taxes for annuity is $84,325,506 versus $81,740,000. Under the
assumption that inflation is 3%, the NPV of the annuity is greater.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 23
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

d.

The inflation rate needs to be 3.2%.

12. Net Discounted Cash Flow. Goal Kick Sports (GKS) is a retail chain that sells youth
and adult soccer equipment. The GKS financial planning group has developed a
spreadsheet model to calculate the net discounted cash flow of the first 5 years of
operations for a new store. This model is used to assess new locations under
consideration for expansion. LO 6, 7, 8

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 24
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

a. Use Excel’s Formula Auditing tools to audit this model and correct any errors
found.
b. Once you are comfortable that the model is correct, use Scenario Manager to
generate a Scenario Summary report that gives Total Discounted Cash Flow for
the following scenarios:

Scenario
1 2 3 4
Tax Rate 33% 25% 33% 25%
Inflation Rate 1% 2% 4% 3%
Annual Growth of 20% 15% 10% 12%
Sales

What is the range of values for the Total Discounted Cash Flow for these
scenarios?

Solutions:
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.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 25
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

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.

13. Analyzing a Supply Chain. Newton Manufacturing produces scientific calculators.

The models are N350, N450, and N900. Newton has planned its distribution of these
products around eight customer zones: Brazil, China, France, Malaysia, U.S.
Northeast, U.S. Southeast, U.S. Midwest, and U.S. West. Data for the current quarter
(volume to be shipped in thousands of units) for each product and each customer
zone are given in the file newton. Newton would like to know the total number of
units going to each customer zone and also the total units of each product shipped.
There are several ways to get this information from the data set. One way is to use
the SUMIF function.
The SUMIF function extends the SUM function by allowing the user to add the
values of cells meeting a logical condition. The general form of the function is

=SUMIF(test range, condition, range to be summed)

The test range is an area to search to test the condition, and the range to be
summed is the position of the data to be summed. So, for example, using the file
newton, we use the following function to get the total units sent to Malaysia:

=SUMIF(A3:A26,A3,C3: C26)

Cell A3 contains the text “Malaysia”; A3:A26 is the range of customer zones; and
C3:C26 are the volumes for each product for these customer zones. The SUMIF looks
for matches of “Malaysia” in column A and, if a match is found, adds the volume to
the total. Use the SUMIF function to get total volume by each zone and total volume
by each product. LO 2, 7

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 26
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Solutions:

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 27
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

14. Auditing a Transportation Model. Consider the transportation model in the file
williamson, which is very similar to the Foster Generators model discussed in this
chapter. Williamson produces a single product and has plants in Atlanta, Lexington,
Chicago, and Salt Lake City and warehouses in Portland, St. Paul, Las Vegas, Tucson,
and Cleveland. Each plant has a capacity, and each warehouse has a demand.
Williamson would like to find a low-cost shipping plan. Mr. Williamson has reviewed
the results and notices right away that the total cost is way out of line. Use the
Formula Auditing tool under the Formulas tab in Excel to find any errors in this
model. Correct the errors. Hint: The model contains two errors. Be sure to check
every formula. LO 8

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

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

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 28
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Error #2: The formula in cell G22 is:

=SUM(B22:E22)

but should be
=SUM(B22:F22)

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 29
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

15. Calculating Course Grades. Professor Rao would like to accurately calculate the
grades for the 58 students in their Operations Planning and Scheduling class (OM
455). Rao has thus far constructed a spreadsheet, part of which follows: LO 2, 7

a. The Course Average is calculated by weighting the Midterm Score and Final Score
50% each. Use the XLOOKUP function with the table shown to generate the
Course Grade for each student in cells E14 through E24.
b. Use the COUNTIF function to determine the number of students receiving each
letter grade.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 30
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Solutions:
a. A portion of the spreadsheet is shown below.

b. Solution shown in cells G14:H18

16. Revenue Model with Quantity Discounts. Richardson Ski Racing (RSR) sells
equipment needed for downhill ski racing. One of RSR’s products is fencing used on
downhill courses. The fence product comes in 150-foot rolls and sells for $215 per
roll. However, RSR offers quantity discounts. The following table shows the price per
roll depending on order size:

Quantity Ordered
From To Price per Roll ($)
1 50 215
51 100 195
101 200 175
201 ∞ 155

The file rsr contains 172 orders that have arrived for the coming six weeks. LO 2, 7
a. Use the XLOOKUP function with the preceding pricing table to determine the total
revenue from these orders.
b. Use the COUNTIF function to determine the number of orders in each price bin.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 31
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Solutions:
a. A portion of the spreadsheet is shown below.

b. See column I below.

17. Currency Exchange Rates. Companies that compete globally must pay attention to
exchange rates between currencies. The exchange rate between two currencies
depends on a variety of factors including each country’s gross domestic product, rate
of economic growth, interest rate, and rate of unemployment. Consider the case of
one U.S. dollar and one Euro with the following exchange rate: 1.00 U.S. dollar = 0.95
Euros. If a company in the United States sells its product in Germany for €50 (50
Euros), what is that revenue worth in U.S. dollars? To convert €50 to U.S. dollars at
the exchange rate of 1.00 U.S. dollar = 0.95 Euros, we solve the following equation
for x:

This results in x = 50 ÷ 0.95 = $52.63. So, €50 is equal to 52.63 U.S. dollars. The file
globalrevenue contains 299 payments received by a company in the United States,

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 32
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

paid in various currencies. Also given in the file are the exchange rates for one U.S.
dollar for 53 different currencies. For each payment, the order number, the amount of
the payment and the currency of the payment are given. LO 2, 7
a. Using the XLOOKUP function to find the relevant exchange rate, convert each
payment to U.S. dollars. Round the U.S. dollars to two decimal places using the
ROUND function. Note that to place the rounded value of cell D2 in cell E2, type
into cell E2 the following function =ROUND(D2,2). What was the U.S. dollar value
of Order #1039?
b. Use the SUM function and the rounded values to calculate the total dollar amount
received from the 299 orders in U.S. dollars. What is the total amount received in
U.S. dollars?

Solutions:
a. $1,931.73
Note that rows 11–289 are hidden.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 33
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

b. $16,052,052.98

18. State Sales Tax for Online Purchases. For online purchases, the location of the
buyer and the location of the business (seller) determine if state sales tax must be
collected at the time of the sale. The rule for collecting sales tax is that if the
business has a physical presence in a state, they must collect applicable sales taxes
from online customers who reside in that state. Breckenridge Fabrics sells fabric
online and has distribution centers in California, Florida, New Jersey, Ohio, and Texas.
The file salestax contains sales data on 279 purchases. For each purchase the
following are provided: Order Number, Buyer State, Supplier State (state of the
distribution center that supplied the goods) and the Sale Amount (in dollars). Also, in
the file salestax is a state tax table that gives the applicable sales tax rate for each of
the 50 states and the District of Columbia. LO 2, 7
a. For each of the 279 purchases, use the XLOOKUP and IF functions to determine if
sales tax must be collected and if so, how much. Round the sales tax due to two
decimal places using the ROUND function. What is the total amount of state sales
taxes collected from these 279 purchases?
b. What proportion of these purchases had to pay sales tax?
c. What is the total amount of these purchases (including any sales tax)?

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 34
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Solutions:
a. Note that rows 11−269 are hidden.

b. $270.00

c. $38,347

19. European Financial Options. A put option in finance allows you to sell a share of stock
at a given price in the future. There are different types of put options. A European put
option allows you to sell a share of stock at a given price, called the exercise price, at a
particular point in time after the purchase of the option. For example, suppose you

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 35
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

purchase a
6-month European put option for a share of stock with an exercise price of $26. If
6 months later, the stock price per share is $26 or more, the option has no value. If in 6
months the stock price is lower than $26 per share, then you can purchase the stock and
immediately sell it at the higher exercise price of $26. If the price per share in 6 months
is $22.50, you can purchase a share of the stock for $22.50 and then use the put option
to immediately sell the share for $26. Your profit would be the difference, $26 – $22.50
= $3.50 per share, less the cost of the option. If you paid $1.00 per put option, then your
profit would be $3.50 – $1.00 = $2.50 per share. LO 2, 3
a. Build a model to calculate the profit of this European put option.
b. Construct a data table that shows the profit per share for a share price in 6
months between $10 and $30 per share in increments of $1.00.

Solutions:
a.

b.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 36
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

20. European Financial Options (Revisited). Consider again Problem 19. The point of
purchasing a European option is to limit the risk of a decrease in the per-share price
of the stock. Suppose you purchased 200 shares of the stock at $28 per share and 75
6-month European put options with an exercise price of $26. Each put option costs
$1. LO 2, 3
a. Using data tables, construct a model that shows the value of the portfolio with
options and without options for a share price in 6 months between $15 and $35
per share in increments of $1.00.
b. Discuss the value of the portfolio with and without the European put options.

Solutions:
a.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 37
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

b. The lower the stock price, the more beneficial the put options are. 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.

21. Revenue with Substitutable Products. The Camera Shop sells two popular
models of digital single lens reflex (DSLR) cameras. The sales of these products are
not independent; if the price of one increase, the sales of the other increases. In
economics, these two camera models are called substitutable products. The store
wishes to establish a pricing policy to maximize revenue from these products. A
study of price and sales data shows the following relationships between the quantity
sold (N) and price (P) of each model. LO 2, 3
NA = 195 – 0.6PA + 0.25PB
NB = 301 + 0.08PA – 0.5PB

a. Construct a model for the total revenue and implement it on a spreadsheet.

b. Develop a two-way data table to estimate the optimal prices for each product in
order to maximize the total revenue. Vary each price from $250 to $500 in
increments of $10.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 38
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Solutions:
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.

22. Refinancing a Mortgage. A few years back, Dave and Jana bought a new home.
They borrowed $230,415 at an annual fixed rate of 5.49% (15-year term) with
monthly payments of $1,881.46. They just made their 25th payment, and the current
balance on the loan is $208,555.87.
Interest rates are at an all-time low, and Dave and Jana are thinking of refinancing
to a new 15-year fixed loan. Their bank has made the following offer: 15-year term,
3.0%, plus out-of-pocket costs of $2,937. The out-of-pocket costs must be paid in full
at the time of refinancing.
Build a spreadsheet model to evaluate this offer. The Excel function

=PMT(rate,nper, pv, fv,type)

calculates the payment for a loan based on constant payments and a constant
interest rate. The arguments of this function are as follows:

rate = the interest rate for the loan

nper = the total number of payments
pv = present value (the amount borrowed)
fv = future value [the desired cash balance after the last payment (usually 0)]
type = payment type (0 = end of period,1 = beginning of the period)

For example, for Dave and Jana’s original loan, there will be 180 payments (12*15 =
180), so we would use =PMT(0.0549/12, 180, 230415, 0, 0) =$1,881.46. Note that

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 39
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

because payments are made monthly, the annual interest rate must be expressed as
a monthly rate. Also, for payment calculations, we assume that the payment is made
at the end of the month.
The savings from refinancing occur over time, and therefore need to be
discounted back to current dollars. The formula for converting K dollars saved t
months from now to current dollars is

where r is the monthly inflation rate. Assume that r = 0.002 and that Dave and Jana
make their payment at the end of each month.
Use your model to calculate the savings in current dollars associated with the
refinanced loan versus staying with the original loan. LO 2, 7

Solutions:

Key cell formulas:

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 40
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

23. Mortgage Prepayment. Consider again the mortgage refinance problem in Problem
22. Assume that Dave and Jana have accepted the refinance offer of a 15-year loan
at 3% interest rate with out-of-pocket expenses of $2,937. Recall that they are
borrowing $208,555.87. Assume that there is no prepayment penalty, so that any
amount over the required payment is applied to the principal. Construct a model so
that you can use Goal Seek to determine the monthly payment that will allow Dave
and Jana to pay off the loan in 12 years. Do the same for 10 and 11 years. Which
option for prepayment, if any, would you choose and why? Hint: Break each monthly
payment up into interest and principal [the amount that is deducted from the balance
owed]. Recall that the monthly interest that is charged is the monthly loan rate
multiplied by the remaining loan balance. LO 2, 5

Solutions:
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.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 41
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Part of the spreadsheet model is shown below:

Key formulas:

24. Assigning Customers to Distribution Centers. Floyd’s Bumpers has distribution

centers in Lafayette, Indiana; Charlotte, North Carolina; Los Angeles, California;
Dallas, Texas; and Pittsburgh, Pennsylvania. Each distribution center carries all
products sold. Floyd’s customers are auto repair shops and larger auto parts retail
stores. You are asked to perform an analysis of the customer assignments to
determine which of Floyd’s customers should be assigned to each distribution center.
The rule for assigning customers to distribution centers is simple: A customer should
be assigned to the closest center. The file floyds contains the distance from each of
Floyd’s 1,029 customers to each of the five distribution centers. Your task is to build

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 42
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

a list that tells which distribution center should serve each customer. The following
functions will be helpful:

=MIN(array)

The MIN function returns the smallest value in a set of numbers. For example, if
the range A1:A3 contains the values 6, 25, and 38, then the formula 5MIN(A1:A3)
returns the number 6, because it is the smallest of the three numbers.

=MATCH(lookup_value, lookup_array, match_type)

The MATCH function searches for a specified item in a range of cells and returns
the relative position of that item in the range. The lookup_value is the value to
match, the lookup_array is the range of search, and match_type indicates the type of
match (use 0 for an exact match).
For example, if the range A1:A3 contains the values 6, 25, and 38, then the
formula =MATCH(25,A1:A3,0) returns the number 2, because 25 is the second item in
the range.

=INDEX(array,column_num)

The INDEX function returns the value of an element in a position of an array. For
example, if the range A1:A3 contains the values 6, 25, and 38, then the formula
=INDEX(A1: A3, 2) = 25, because 25 is the value in the second position of the array
A1:A3. Hint: Create three new columns. In the first column, use the MIN function to
calculate the minimum distance for the customer in that row. In the second column
use the MATCH function to find the position of the minimum distance. In the third
column, use the position in the previous column with the INDEX function referencing
the row of distribution center names to find the name of the distribution center that
should service that customer. LO 2, 7

Solutions:
A portion of the spreadsheet is shown below:

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 43
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

25. Transportation Costs. Refer to Problem 24. Floyd’s Bumpers pays a transportation
company to ship its product in full truckloads to its customers. Therefore, the cost for
shipping is a function of the distance traveled and a fuel surcharge (also on a per-
mile basis). The cost per mile is $2.42, and the fuel surcharge is $0.56 per mile. The
file floydsmay contains data for shipments for the month of May (each record is
simply the customer zip code for a given truckload shipment) as well as the distance
table from the distribution centers to each customer. Use the MATCH and INDEX
functions to retrieve the distance traveled for each shipment, and calculate the
charge for each shipment. What is the total amount that Floyd’s Bumpers spends on
these May shipments? Hint: The INDEX function may be used with a two-dimensional
array: =INDEX(array, row_num, column_num), where array is a matrix, row_num is
the row number, and column_num is the column position of the desired element of
the matrix. LO 2, 7

Solutions:
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:

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 44
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

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: =XLOOKUP(A6,$Q$4:$Q$1032,$R$4:$R$1032,#N/A, 0,1)

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

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

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

F6: =($C$2 + $G$2) × E6

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 45
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

26. Discount Price versus 0-Percent Financing. An auto dealership is advertising that
a new car with a sticker price of $35,208 is on sale for $25,995 if payment is made in
full, or it can be financed at 0% interest for 72 months with a monthly payment of
$489. Note that 72 payments × $489 per payment = $35,208, which is the sticker
price of the car. By allowing you to pay for the car in a series of payments (starting one
month from now) rather than $25,995 now, the dealer is effectively loaning you
$25,995. If you choose the 0% financing option, what is the effective interest rate that
the auto dealership is earning on your loan? Hint: Discount the payments back to
current dollars [see Problem 22 for a discussion of discounting], and use Goal Seek to
find the discount rate that makes the net present value of the payments = $25,995.
LO 2, 5

Solutions:
A portion of the spreadsheet is shown below:

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 46
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

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.

CASE PROBLEM: RETIREMENT PLAN

Tim is 37 years old and would like to establish a retirement plan. Develop a spreadsheet
model that could be used to assist Tim with retirement planning. Your model should include
the following input parameters:

Tim’s current age = 37 years

Tim’s current total retirement savings = $259,000
Annual rate of return on retirement savings = 4%
Tim’s current annual salary = $145,000
Tim’s expected annual percentage increase in salary = 2%
Tim’s percentage of annual salary contributed to retirement = 6%
Tim’s expected age of retirement = 65
Tim’s expected annual expenses after retirement (current dollars) = $90,000
Rate of return on retirement savings after retirement = 3%
Income tax rate postretirement = 15%

Assume that Tim’s employer contributes 6% of Tim’s salary to their retirement fund. Tim
can make an additional annual contribution to their retirement fund before taxes (tax free)
up to a contribution of $16,000. Assume that Tim contributes $6,000 per year. Also, assume
an inflation rate of 2%. LO 2, 3

Managerial Report
Your spreadsheet model should provide the accumulated savings at the onset of retirement
as well as the age at which funds will be depleted (given assumptions on the input
parameters).
Include a data table in your spreadsheet model to demonstrate the sensitivity of the age
at which funds will be depleted to the retirement age and additional pretax contributions.
Similarly, consider other factors you think might be important.
Develop a report for Tim outlining the factors that will have the greatest impact on Tim’s
retirement.
Solutions:
We take as the base case for Tim’s retirement planning problem the parameter settings
below:

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 47
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

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

Their 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 preretirement module and a
postretirement module. During the preretirement time, money is accumulated through
salary-based contributions from Tim, additional pretax contributions from Tim, the school’s
contribution to Tim’s account, and returns on the investment. During the postretirement
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).

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 48
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 49
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

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 pretax contributions is specifically requested. A data table
as shown below indicates how age when funds run out varies with these inputs.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 50
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

Graphically, using just the even ages we have:

Obviously as retirement age and pretax contributions increase, so too will the age when
funds run out. For a given age, contributing the maximum pretax 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 2 to 3 years.

While retirement age and pretax 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 preretirement 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.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 51
website, in whole or in part.
 Solution and Answer Guide: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, Business
Analytics, 2024, 9780357902202; Chapter 12: Spreadsheet Models

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.

© 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 52
website, in whole or in part.