Salida LLP provides two kinds of services to clients: telephone answering and billing. Because Salida’s clients for each type of service are approximately the same size, the company has standardized fees for its services: $3,600 per month for telephone answering and $5,000 per month for billing. The company has three telephone clients for every two billing clients. Variable costs of the services are $2,160 for telephone clients and $3,810 for billing clients. Fixed costs are $2,345,000 per year. Required: (a) How many telephone clients and billing clients are needed to break even each year? (b) If Salida LLP has a tax rate of 35 percent, how many telephone clients and billing clients are needed to earn an after-tax income of $217,750? (c) Salida LLP currently has 2,460 telephone answering clients and 1,640 billing clients. What is Salida’s pretax income? The company is considering lowering fees for telephone answering and billing clients to $3,200 and $4,400, respectively. If this change is made and no new clients are added, how many dollars of fixed costs can the company incur and Still maintain the same pretax income as is currently being generated? (d) Use original data. Salida LLP is considering raising the fee for billing clients to $6,350. If this increase were made, the telephone answering to billing client ratio would decline to 3:1. How many telephone clients and billing clients would be needed to break even each year if fixed costs do not change? (e) Wha

Modify the model from Example 11.7 so that you use only the years 1975 to 2007 of historical data. Run the simulation for the same three sets of investment weights. Comment on whether your results differ in any important way from those in the example.

Example 11.7

Attorney Sally Evans has just begun her career. At age 25, she has 40 years until retirement, but she realizes that now is the time to start investing. She plans to invest $1000 at the beginning of each of the next 40 years. Each year, she plans to put fixed percentages—the same each year—of this $1000 into stocks, Treasury bonds (T-bonds), and Treasury bills (T-bills). However, she is not sure which percentages to use. (We call these percentages investment weights.) She does have historical annual returns from stocks, T-bonds, and T-bills from 1946 to 2007. These are listed in the file Retirement Planning.xlsx. This file also includes inflation rates for these years. For example, for 1993 the annual returns for stocks, T-bonds, and T-bills were 9.99%, 18.24%, and 2.90%, respectively, and the inflation rate was 2.75%. Sally would like to use simulation to help decide what investment weights to use, with the objective of achieving a large investment value, in today’s dollars, at the end of 40 years.

Objective To use simulation to estimate the value of Sally’s future investments, in today’s dollars, from several investment strategies in T-bills, T-bonds, and stocks.

Write a report and presentation covering following points:

Pernavik Dairy produces and sells a wide range of dairy products. Because a government regulatory board sets most of the dairy’s costs and prices, most of the competition between the dairy and its competitors takes place through advertising. The controller of Pernavik has developed the sales and advertising levels for the past 52 weeks. These appear in the file P14_60.xlsx. Note that the advertising levels for the three weeks prior to week 1 are also listed. The controller wonders whether Pernavik is spending too much money on advertising. He argues that the company’s contribution-margin ratio is about 10%. That is, 10% of each sales dollar goes toward covering fixed costs. This means that each advertising dollar has to generate at least $10 of sales or the advertising is not cost-effective. Use regression to determine whether advertising dollars are generating this type of sales response.