Q uestion 1:

From its peak at the end of 2007, house prices in London have dropped around 15% until now. Believing that this downward trend is about to be reversed, Tom Herbert, a single 26 year-old trying to get on "the property ladder" has identified a 1-bedroom flat he could buy for £250,000. Tom contacted a number of financial institutions and was offered the following mortgage options:

• repayment fixed rate for 2-years of 2.94%. After that period, the rate reverts to the bank’s standard variable rate, which currently is 5%;
• repayment fixed rate for 5-years of 3.55%. After that period, the rate reverts to the bank’s standard variable rate, which currently is 5%;
• interest only mortgage at 4% for the life of the loan. In this instance, you would be required to create an investment fund, which pays an interest rate of 2.5% to cover the repayment of the mortgage.

Assuming he wants to finish paying the mortgage by the he is 50, please advise Tom on which option he should pursue, including an assessment of whether that advise would change if interest rates went up or down by up to three percentage points.

Question 2: (10%)

With the reduction in sales driven by the financial crisis that has affected its trade, Office Trade, a wholesaler of office equipment has been conducting a review of its stock ordering system. The management of the company has asked each of the analysts in its finance department, to look at each of its products, and you were asked to look at book shelving units. Having made your research, you have determined that it is uncertain when the recovery will start, so you have established the following demand scenarios for the next 12 months:

Considering the cost per order is £30 and the average carrying cost per unit is £2, make a recommendation to the board of Office Trade, as to how often it should order and what level or stock should be ordered, and assess the impact of this recommendation at the different levels of demand.

Question 3: (15%)

The sales manager for an electronics retailer is trying to determine the sales mix that maximises the profit for one of its product lines. This product line is sold in three levels of content: Basic, Medium and High, which sell for £90, £140 and £190 respectively. The different levels of content of the product use the following inputs:

The costs for the inputs are £15 per hour for Labour and £5, £2 and £1 per unit for Direct Material, Packaging and Other Materials, respectively.

Formulate this problem as a linear program and use Excel’s Solver to arrive at a solution. Write a short report describing your procedure, justify your formulation and give a recommendation to the firm.

Question 4: (10%)

Pierce plc, which has a cost of capital of 9.5%, is analysing two mutually exclusive investment opportunities. For both investments, the initial capital outlay will be £5,000 and the cash flows generated by each investment are as follows:

Make a recommendation to Pierce as to which project it should implement, including an indication of whether that decision should be different in case the cost of capital changes in the near future.

Question 5: (35%)

The table on the next page represents data for the profits, sales, size and number of product lines sold by the 20 branches of a retailing company. You have been asked to analyse the data, using the Data Analysis tool in Excel, and make recommendations, including answering the following questions.

1. Summarise the distribution of profits of the twenty branches and comment on the results?
2. Is there evidence that the average number of lines stocked per store is significantly different from 78?
3. If you divide the branches in two groups with, one of branches with sales above £150,000, and the other with sales below that value, is there a significant difference between the profits of the groups?
4. Based on this sample, provide a 99% confidence interval, and comment on the outcome, for the profits of the twenty branches.
5. Is there evidence of association between the profit and the other variables?
6. Develop three regression models to predict the profit based upon each of the other factors (variables) individually. Which of these is best? What are the limitations of your best model? How can you improve this analysis?

Price: $35.68

Solution: The downloadable solution consists of 17 pages, 1868 words and 1 charts.
Deliverable: Word Document