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ADMS 3330 Summer 2012 Part 2 - Solution.pdf

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York University
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Winter

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AK/ADMS 3330.3.0 MIDTERM EXAMINATION Part 2 ADMS 3330 Summer 2012 MIDTERM EXAMINATION – Part 2 of 2 June 24, 2012 Total Time Allowed: 3hrs (Parts 1&2) Prof. F. Cavanagh Section B Section C Prof. S. Abdulla Section D Prof. A. Dasci Section E Instructions 1. You must write this exam in the section in which you are enrolled and the room assigned. 2. This is a closed book examination. 3. Answer all questions on examination paper where space is provided You must show your work 4. Record Multiple Choice answers on the Scantron sheet 5. Aids allowed: writing utensils, eraser, silent non-programmabler, and English paper- based dictionary. 6. Calculations are to be done to the 4 decimal place 7. YOU MUST HAND IN THIS EXAM (WITH ALL PAGES INTACT) BEFORE LEAVING THE EXAMINATION ROOM FAILURE TO DO SO WILL RESULT IN AN AUTOMATIC F GRADE. MARKS: MCQ: (60) K E Y ___________________________ Question 1: (18) Student’s Name (Print) Question 2: (22) TOTAL: (100) ___________________________ Student Number ___________________________ Signature DO NOT DETACH ANY PAGES. 1 | Page AK/ADMS 3330.3.0 MIDTERM EXAMINATION Part 2 Question 1 (18 marks) ACME Heavy Machinery Division’s is a world leader in heavy-duty equipment used in surface mining and construction operations. The quarterly demand for one of their most popular lines in the past 14 quarters (3.5 years) is given below: a) Assuming a Multiplicative Time-Series Model, Compute the seasonal Indices for all four seasons and de-seasonalize the data. (Use next page if needed. There are other follow-up questions). [13 marks] Period Year Season Demand 4‐MA Centered Seasonal Irregular  1 2009 Winter 184 2 Spring 280 3 Summer 400 276 278 1.43885 Fall 240 4 280 285.5 0.84063 5 2010 Winter 200 291 301 0.66445 6 Spring 324 311 308.5 1.05024 7 Summer 480 306 307.5 1.56098 8 Fall 220 309 313.5 0.70175 2011 Winter 212 9 318 322 0.65839 10 Spring 360 326 327.5 1.09924 11 Summer 512 329 330 1.55152 12 Fall 232 331 330 0.70303 13 2012 Winter 220 329   Spring 352 14 Indices Normlized Indices Winter 0.6614 0.6611 Spring 1.0747 1.0743 Summer 1.5171 1.5165 Fall 0.7485 0.7481 1.0004 b) On average, which season has the lowest demand? [1 mark] Winter, which has the lowest index (0.6614). 2 | Page AK/ADMS 3330.3.0 MIDTERM EXAMINATION Part 2 c) If the trend line (the least squares regression line for the de-seasonalized data where t=1,2,…14) is F t 266 4.6t , forecast the demand for Summer and Fall of 2012. [4 marks] Summer: Deseasonalized F = 266 + 4.6 (15) = 335 F = (335)(1.5165) = 508 Fall: Deseasonalized F = 266 + 4.6 (16) = 339.6 F = (339.6)(0.7481) = 254 3 | Page AK/ADMS 3330.3.0 MIDTERM EXAMINATION Part 2 Question 2 (22 marks) ACME Pharmaceuticals is working on a new drug formula for slowing down the effects of a disease. Based on the initial test results, the development team suggests that, the formula has a 10% chance of being a successful (S) and 90% chance of failing (F) in obtaining the approval from the Food and Drug Administration. The marketing department has estimated that, if successful, the formula can bring an expected total profit of \$800M. On the other hand, if it fails it will result in a loss of \$50M. If the company abandons the drug development, they can invest in a fixed-return option, which will have a sure return of \$30M. Assume that company is risk-neutral. a) Should the firm develop the new formula? Construct the decision tree and find the optimal strategy. [6 marks]   0.1   Success
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