1.            BatesManor Furniture:

 

a)       Given that

 

i)               the average Bates.Manor sales in a retail store that carries their furniture is $75,000 at manufacturer’s prices

 

ii)             the typical retail furniture store has a gross margin of 60%

 

Calculate the BatesManor dollar sales at retail prices in their average store.  Explain your reasoning and state any assumptions you make.

 

b)           As noted above, the gross margin of a furniture retailer is approximately                    

60%.  In contrast the overall gross margin in a typical supermarket is 26%, with the category GM’s ranging from 18% for “Meat, poultry and seafood” to 50% for “Bakery/Deli”.  Why are these Gross Margins so different in magnitude?  Suggest reasons and discuss your conclusions.

 

c)     Assume that BatesManor has just hired a new consultant. The consultant has noted the more furniture that people buy (i.e. “the bigger the pie”) the better the sales prospects for BatesManor. She has recommended that BatesManor greatly increase their advertising budget and focus their efforts on increasing the primary demand (i.e. the “size of the pie”) for furniture.  Carefully and critically review this

                         proposed strategy and advise Mr. Bates.  Explain your reasoning.

 

 

2.             Parvaderm

 

a)    Given the revised figures in the Payoff Table below complete the calculations for the five (5) EMV’s.  Show your logic and calculations.

 

CALCULATION OF EXPECTED MONETARY VALUE

AND THE VALUE OF PERFECT INFORMATION

 

Payoff Table

 

 

                                                                                Low Estimate                 High Estimate

                                                                                     P = .3                           P =.7

                        Aerosol Container

 

                        5 ½ Ounce Package                        $59,000                            $130,000                                   

                                           

                        10- Ounce Package                                    -$35,000                            $175,000

                                                                  

 

                        EMV                                          =

                                5 ½ oz package           

 

                        EMV                                                              =                       

                                10 oz package

 

 

Value of Perfect Information

 

                       

                        EMV                                                  =                                                           

                                Certainty           

 

                        EMV                                                  =                                                           

                                Best Alternative

 

                         EMV

                                 Perfect Information         =

 

 

 

Given the above analyses is the test market (total cost of $40,000) economically justified?  Explain carefully.  Explicitly identify your assumptions.

 

 

b)  Write two 200-word (or less) memos  to Ms. Phoebe Masters making the respective cases for

 

(i)             the 5 ½oz package

 

(ii)           the 10 oz. package.

 

i.e. you are to incorporate the analysis presented in (a) above to support each package size in the separate memos.  Incorporate the notions of risk preference (from Ms. Masters’ point of view) into each memo.

 

Extra Credit (4 points).

 

President Obama has proposed an increase in the national minimum wage from the current level of $7.25 to $9.00. Apply the principles of causation to evaluate this proposal from the differing perspectives of

 

1)    a current minimum wage worker;

 

2)    an employer of minimum wage workers;

 

3)    a Union executive.

 

4)    An investor in Macdonald’s Corp.

 

Explain your reasoning