An analyst is about to make a presentation on the potential of Superior Industries International as an acquisition target. The issue for students is whether the synergies are enough to justify a 20% premium over the current price. A secondary objective of the case is to introduce the residual cash flow approach and to relate it to the weighted-average cost of capital (WACC) approach.
This case and its companion, "Myerson Industries" (UV0428), constitute the materials for a negotiating exercise. The excercise is a distributive-bargaining situation surrounding the negotiation of the price for the construction of a building (some minor opportunities exist for creating mutual value).
In this case, the managers of quality assurance must specify a fill-target for individual bottles of a new blood-pressure medicine. Higher targets lead to higher material costs but fewer seconds.
Thomas Stearns must decide whether to continue with planned software development and risk missing the completion deadline on a $20 million project or bite the bullet and make some costly hardware changes that will virtually eliminate the risk of missing the deadline. This introductory decision analysis case: (1) contains a compound (square-circle-square) decision, (2) encourages a discussion of the meaning of probability, and (3) requires the use of sensitivity analysis to handle the unspecified costs of missing the deadline.
This case and its companion, "Centralia Construction Corporation" (UV0345), constitute the materials for an excercise in role playing and negotiating. The exercise is a distributive-bargaining situation surrounding the negotiation of the price for the construction of a building (some minor opportunities exist for creating mutual value). Myerson is the purchaser of the building.
With the assistance of a temporary graduate student, the director of corporate research uses multiattribute decision analysis to find a plan with greatly improved projected performance (see UV0528). The methodology for eliciting probabilities, assessing trade-offs and risk preferences, and finding the most desirable plan is detailed. (A follow-up case, which takes place four years later, is UV0531.)
Four years after the A and B cases (UV0528 and UV0530), the annual plan has drifted greatly from that suggested by the analysis in the B case. How can the decision-analysis methodology be simplified to provide routine planning guidance?
Students are asked in each of the situations presented, which alternative is better, assuming that they would put whatever money they receive in a secure investment that returns 10% annually.
This case describes the coal-procurement process of a small electric utility. The manager of the production fuel department must decide how much coal to purchase from each vendor and how to allocate the purchased coal among the utility's three coal-burning plants. The situation can be modeled and solved as a linear program. Sensitivity analysis can be used to help formulate a strategy for negotiating with the vendors and to address other special issues.
You are Pat Divso, a senior purchasing agent of Compressor Corporation, Inc. (CCI). You have been given a major purchasing assignment to find a solution to the deadlocked price negotiations with Scandia Steel AB, a major supplier of specialty high-carbon and stainless steels, and a strategically critical partner. You are now en route from your Paris office to Sweden where you will meet tomorrow, August 29, 1995, with Kaj Johansson (pronounced Ki), marketing director of Scandia Steel at Scandia's headquarters in Uppsala.
George Lasiter sells special-events T-shirts, and must decide how many to order for an upcoming concert. He has high, medium, and low estimates of both concert attendance and the percentage of attendees who will want a shirt. In addition, he has assessed the relative likelihoods of each estimate. The case can be used to introduce or reinforce the fundamental issues surrounding decision-making under uncertainty.
This case describes the situation faced by the general manager of the A's at the end of the 1980 baseball season. The A's star pitcher, in negotiating his contract, claims that attendance was noticeably higher at games in which he was the starting pitcher. Game-by-game data for the 1980 season on home attendance and ten variables affecting attendance are given. The case is suited for use near the end of a module on regression. It can be used to (1) review the t-test for a difference in means and relate the difference to regression with a dummy variable, (2) illustrate the importance of a model-building framework, even if used to evaluate someone else's models, (3) illustrate the use of dummy variables, and (4) point out the difference between conditional and marginal inference. The supplement, QA-0313, contains the results of several regression analyses of the A's 1980 home-attendance data and may be used with the A case to facilitate analysis of the situation. (The B case is UV3698.)
The general manager of the Oakland A's professional baseball team must evaluate two salary-and-bonus plans proposed by the A's star pitcher (see UV3696). The plans call for the pitcher to receive a bonus if the next season's home attendance exceeds a specified amount. Historical data are provided on team performance (number of games won), attendance, and the general manager's preseason forecasted number of wins.
Peter Gordon, manager of a $1.6 billion investment in municipal securities at Price, has just received phone calls from the sales representatives of two investment banks, each offering attractive opportunities for the reinvestment of $50 million that will shortly become available. He may choose either but not both of the offers. The case can be used to review the contents of a "tombstone," to reinforce NPV and IRR concepts, to witness the inappropriateness of using IRR as a selection criterion among mutually exclusive projects, and to emphasize the reinvestment assumption of IRR.
Cummins, Epley, and Mayo, a U.S.-based construction firm, has been selected as the prime contractor for a road-reconstruction project in Saudi Arabia. Based on company cost estimates, the project provides a 15% return on costs, well below the required 18%. Because of a substantial advance payment and the specific timing of the payments, the project's IRR is 40%. This case can be used as an introduction to or a reinforcement of discounted-cash-flow techniques. It provides a dramatic portrayal of the time value of money, an opportunity for sensitivity analysis, and a possibility for using decision diagrams for structuring realistic contingencies.
Amore must set the fill-target for its eight-ounce macaroni and cheese pie. Unless five sample pies taken every 20 minutes average more than eight ounces, the entire 20-minute batch must be rejected. The case provides enough information to make an economic decision on the fill target. The case may be used to introduce the distribution of a sample average.
The manager of the Revenue Enhancement Department of an airline has to decide the optimal number of seats to reserve for discount customers on a particular flight. Historical data are given, as well as probability distributions of demand for both full and discount fares, in order to help make the decision. (The B case is QA-0340.)
In this B case, the initial results from a Monte Carlo simulation seem to conflict with the critical fractile result discussed earlier in the case. The manager must figure out why and then make a decision.