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

North-South Airlines Case Study

Northern Engine
Data

Forecasts and Error Analysis

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

Coefficient of determination

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

Forecasts and Error Analysis

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

Coefficient of determination

MSE
MAPE
6.4696514679
0.624867994
0.39046001

Regression line
40
35
30
25
dependent variable (y)

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

North-South Airlines Case Study

Southern Engine
Data
Period

Forecasts and Error Analysis

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

Coefficient of determination

MSE
MAPE
7.1199914045
0.6781750964
0.4599214614

Regression line
45
40
35
30
25
dependent variable (y)

20

y =.0041x - .6709

15
10
5
0
4,000

6,000

8,000

independent variable (x)

10,000