Sherene Nili manages a company that makes wedding gowns. She produces both a custom product that is made to order and a standard product that is sold in bridal salons. Her accountant prepared the following forecasted income statement for March, which is a busy month:

	Custom Dresses	Standard Dresses	Total
Number of dresses	10	20	30
Sales revenue	$50,000	$30,000	$80,000
Materials	$10,000	$8,000	$18,000
Labor	20,000	9,000	29,000
Machine depreciation	600	300	900
Rent	4,200	2,800	7,000
Heat and light	1,000	600	1,600
Other production costs			2,800
Marketing and administration			7,700
Total costs			67,000
Operating profit			$13,000

Ms. Nili already has orders for the 10 custom dresses refl ected in the March forecasted income statement. The depreciation charges are for machines used in the respective product lines. Machines depreciate at the rate of$1 per hour based on hours used, so these are variable costs. In March, cutting and sewing machines are expected to operate for 900 hours, of which 600 hours will be used to make custom dresses. The rent is for the building space, which has been leased for several years at $7,000 per month. The rent, heat, and light are allocated to the product lines based on the amount of fl oor space occupied.

A valued customer, who is a wedding consultant, has asked Ms. Nili for a special favor. This customer has a client who wants to get married in early April. Ms. Nili’s company is working at capacity and would have to give up some other business to make this dress. She can’t renege on custom orders already agreed to, but she can reduce the number of standard dresses produced in March to 10. Ms. Nili would lose permanently the opportunity to make up the lost production of standard dresses because she has no unused capacity for the foreseeable future. The customer is willing to pay$24,000 for the special order. Materials and labor for the order will cost $6,000 and$10,000, respectively. The special order would require 140 hours of machine time. Ms. Nili’s company would save 150 hours of machine time from the standard dress business given up. Rent, heat and light, and other production costs would not be affected by the special order.

Required
What are the other factors, if any, besides price that she should consider?

Sherene Nili manages a company that makes wedding gowns. She produces both a custom product that is made to order and a standard product that is sold in bridal salons. Her accountant prepared the following forecasted income statement for March, which is a busy month:

Ms. Nili already has orders for the 10 custom dresses refl ected in the March forecasted income statement. The depreciation charges are for machines used in the respective product lines. Machines depreciate at the rate of$1 per hour based on hours used, so these are variable costs. In March, cutting and sewing machines are expected to operate for 900 hours, of which 600 hours will be used to make custom dresses. The rent is for the building space, which has been leased for several years at $7,000 per month. The rent, heat, and light are allocated to the product lines based on the amount of fl oor space occupied.

A valued customer, who is a wedding consultant, has asked Ms. Nili for a special favor. This customer has a client who wants to get married in early April. Ms. Nili’s company is working at capacity and would have to give up some other business to make this dress. She can’t renege on custom orders already agreed to, but she can reduce the number of standard dresses produced in March to 10. Ms. Nili would lose permanently the opportunity to make up the lost production of standard dresses because she has no unused capacity for the foreseeable future. The customer is willing to pay$24,000 for the special order. Materials and labor for the order will cost $6,000 and$10,000, respectively. The special order would require 140 hours of machine time. Ms. Nili’s company would save 150 hours of machine time from the standard dress business given up. Rent, heat and light, and other production costs would not be affected by the special order.

Required
Should Ms. Nili take the order? Explain your answer.

See Table down below showing financial statement data and stock price data for Mydeco Corp.

a. What were Mydeco's gross margins each year?

b. Comparing Mydeco's gross margin, EBIT margin, and net profit margin in $2012$ to $2016$, which margins improved?

2012–2016 Financial Statement Data and Stock Price Data for Mydeco Corp

Mydeco Corp. 2012–2016 $\hspace{30mm}$ (All data as of fiscal year end; in $million)$

$$\begin{array}{lccccc} \text{Income statement} & 2012 & 2013 & 2014 & 2015 & 2016 \\ \text{Revenue} & 401.9 & 361.6 & 429.6 & 513.6 & 602.6 \\ \underline{\text{Cost of Goods Sold}} & (192.1) & (175.4) & (207.1) & (248.3) & (295.8)\\ \text{Gross Profit} & 209.8 & 186.2 & 222.5 & 265.3 & 306.8\\ \text{Sales and Marketing} & (65.0) & (64.4) & (84.3) & (104.9) & (121.1)\\ \text{Administration} & (61.8) & (57.1) & (59.0) & (66.9) & (79.8)\\ \underline{\text{Depreciation $\And$ Amortization}} & (27.5) & (26.3) & (32.5) & (38.3) & (40.1)\\ \text{EBIT} & 55.5 & 38.4 & 46.7 & 55.2 & 65.8\\ \underline{\text{Interest Income (Expense)}} & (32.4) & (31.8) & (32.0) & (37.0) & (40.9)\\ \text{Pretax Income} & 23.1 & 6.6 & 14.7 & 18.2 & 24.9\\ \underline{\text{Income Tax}} & (8.1) & (2.3) & (5.1) & (6.4) & (8.7)\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Shares outstanding (millions)} & 56.8 & 56.8 & 56.8 & 56.8 & 56.8\\ \text{Earnings per share} & \$0.26 & \$0.08 & \$0.17 & \$0.21 & \$0.29\\ \text{Balance Sheet} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Assets}\\ \text{Cash} & 49.4 & 68.0 & 91.7 & 80.4 & 83.6\\ \text{Accounts Receivable} & 87.6 & 70.6 & 69.3 & 77.4 & 84.2\\ \text{Inventory} & 33.5 & 32.2 & 27.3 & 30.2 & 35.8\\ \text{Total Current Assets} & 170.5 & 170.8 & 188.3 & 188.0 & 203.6\\ \text{Net Property, Plant $\And$ Equip.} & 244.3 & 243.3 & 306.1 & 349.6 & 347.9\\ \text{Goodwill $\And$ Intangibles} & 365.5 & 365.5 & 365.5 & 365.5 & 365.5\\ \text{Total Assets} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Liabilities $\And$ Stockholders’ Equity}\\ \text{Accounts Payable} & 18.8 & 18.8 & 22.4 & 27.1 & 30.3\\ \text{Accrued Compensation} & 7.6 & 6.3 & 7.5 & 7.7 & 9.4\\ \text{Total Current Liabilities} & 26.4 & 25.1 & 29.9 & 34.8 & 39.7\\ \text{Long-term Debt} & 498.9 & 498.9 & 572.2 & 597.5 & 597.5\\ \text{Total Liabilities} & 525.3 & 524 & 602.1 & 632.3 & 637.2\\ \text{Stockholders’ Equity} & 255.0 & 255.6 & 257.8 & 270.8 & 279.8\\ \text{Total Liabilities $\And$ Stockholders’ Equity} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Statement of Cash Flows} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Depreciation $\And$ Amortization} & 27.5 & 26.3 & 32.5 & 38.3 & 40.1\\ \text{Chg. in Accounts Receivable} & 3.9 & 17.0 & 1.3 & (8.1) & (6.8)\\ \text{Chg. in Inventory} & (2.9) & 1.3 & 4.9 & (2.9) & (5.6)\\ \underline{\text{Chg. in Payables $\And$ Accrued Comp.}} & 1.7 & (1.3) & 4.8 & 4.9 & 4.9\\ \text{Cash from Operations} & 45.2 & 47.6 & 53.1 & 44.0 & 48.8\\ \underline{\text{Capital Expenditures}} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Cash from Investing Activities} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Dividends Paid} & (5.2) & (5.2) & (5.2) & (5.2) & (5.6)\\ \text{Sale (or purchase) of stock} & — & — & — & — & —\\ \underline{\text{Debt Issuance (Pay Down)}} & — & — & 73.3 & 25.3 & —\\ \text{Cash from Financing Activities} & (5.2) & (5.2) & 68.1 & 20.1 & (5.6)\\ \text{Change in Cash} & 13.4 & 18.6 & 23.7 & (11.3) & 3.2\\ \text{Mydeco Stock Price} & \$7.02 & \$3.55 & \$5.86 & \$8.33 & \$11.57\\ \end{array}$$

$

See Table down below showing financial statement data and stock price data for Mydeco Corp. Suppose Mydeco had purchased additional equipment for $\$ 12.3$ million at the end of $2013$, and this equipment was depreciated by $\$ 4.1$ million per year in $2014$, $2015$, and $2016$. Given Mydeco's tax rate of $35 \%$, what impact would this additional purchase have had on Mydeco's net income in years $2013-2016$? (Assume the equipment is paid for out of cash and that Mydeco earns no Vind interest on its cash balances.)

2012–2016 Financial Statement Data and Stock Price Data for Mydeco Corp

Mydeco Corp. 2012–2016 $\hspace{30mm}$ (All data as of fiscal year end; in $million)$

$$\begin{array}{lccccc} \text{Income statement} & 2012 & 2013 & 2014 & 2015 & 2016 \\ \text{Revenue} & 401.9 & 361.6 & 429.6 & 513.6 & 602.6 \\ \underline{\text{Cost of Goods Sold}} & (192.1) & (175.4) & (207.1) & (248.3) & (295.8)\\ \text{Gross Profit} & 209.8 & 186.2 & 222.5 & 265.3 & 306.8\\ \text{Sales and Marketing} & (65.0) & (64.4) & (84.3) & (104.9) & (121.1)\\ \text{Administration} & (61.8) & (57.1) & (59.0) & (66.9) & (79.8)\\ \underline{\text{Depreciation $\And$ Amortization}} & (27.5) & (26.3) & (32.5) & (38.3) & (40.1)\\ \text{EBIT} & 55.5 & 38.4 & 46.7 & 55.2 & 65.8\\ \underline{\text{Interest Income (Expense)}} & (32.4) & (31.8) & (32.0) & (37.0) & (40.9)\\ \text{Pretax Income} & 23.1 & 6.6 & 14.7 & 18.2 & 24.9\\ \underline{\text{Income Tax}} & (8.1) & (2.3) & (5.1) & (6.4) & (8.7)\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Shares outstanding (millions)} & 56.8 & 56.8 & 56.8 & 56.8 & 56.8\\ \text{Earnings per share} & \$0.26 & \$0.08 & \$0.17 & \$0.21 & \$0.29\\ \text{Balance Sheet} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Assets}\\ \text{Cash} & 49.4 & 68.0 & 91.7 & 80.4 & 83.6\\ \text{Accounts Receivable} & 87.6 & 70.6 & 69.3 & 77.4 & 84.2\\ \text{Inventory} & 33.5 & 32.2 & 27.3 & 30.2 & 35.8\\ \text{Total Current Assets} & 170.5 & 170.8 & 188.3 & 188.0 & 203.6\\ \text{Net Property, Plant $\And$ Equip.} & 244.3 & 243.3 & 306.1 & 349.6 & 347.9\\ \text{Goodwill $\And$ Intangibles} & 365.5 & 365.5 & 365.5 & 365.5 & 365.5\\ \text{Total Assets} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Liabilities $\And$ Stockholders’ Equity}\\ \text{Accounts Payable} & 18.8 & 18.8 & 22.4 & 27.1 & 30.3\\ \text{Accrued Compensation} & 7.6 & 6.3 & 7.5 & 7.7 & 9.4\\ \text{Total Current Liabilities} & 26.4 & 25.1 & 29.9 & 34.8 & 39.7\\ \text{Long-term Debt} & 498.9 & 498.9 & 572.2 & 597.5 & 597.5\\ \text{Total Liabilities} & 525.3 & 524 & 602.1 & 632.3 & 637.2\\ \text{Stockholders’ Equity} & 255.0 & 255.6 & 257.8 & 270.8 & 279.8\\ \text{Total Liabilities $\And$ Stockholders’ Equity} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Statement of Cash Flows} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Depreciation $\And$ Amortization} & 27.5 & 26.3 & 32.5 & 38.3 & 40.1\\ \text{Chg. in Accounts Receivable} & 3.9 & 17.0 & 1.3 & (8.1) & (6.8)\\ \text{Chg. in Inventory} & (2.9) & 1.3 & 4.9 & (2.9) & (5.6)\\ \underline{\text{Chg. in Payables $\And$ Accrued Comp.}} & 1.7 & (1.3) & 4.8 & 4.9 & 4.9\\ \text{Cash from Operations} & 45.2 & 47.6 & 53.1 & 44.0 & 48.8\\ \underline{\text{Capital Expenditures}} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Cash from Investing Activities} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Dividends Paid} & (5.2) & (5.2) & (5.2) & (5.2) & (5.6)\\ \text{Sale (or purchase) of stock} & — & — & — & — & —\\ \underline{\text{Debt Issuance (Pay Down)}} & — & — & 73.3 & 25.3 & —\\ \text{Cash from Financing Activities} & (5.2) & (5.2) & 68.1 & 20.1 & (5.6)\\ \text{Change in Cash} & 13.4 & 18.6 & 23.7 & (11.3) & 3.2\\ \text{Mydeco Stock Price} & \$7.02 & \$3.55 & \$5.86 & \$8.33 & \$11.57\\ \end{array}$$

$

See Table down below showing financial statement data and stock price data for Mydeco Corp.

a. Compute Mydeco's ROE each year from $2012$ to $2016$.

b. Compute Mydeco's ROA each year from $2012$ to $2016$.

c. Which return is more volatile? Why?

2012–2016 Financial Statement Data and Stock Price Data for Mydeco Corp

Mydeco Corp. 2012–2016 $\hspace{30mm}$ (All data as of fiscal year end; in $million)$

$$\begin{array}{lccccc} \text{Income statement} & 2012 & 2013 & 2014 & 2015 & 2016 \\ \text{Revenue} & 401.9 & 361.6 & 429.6 & 513.6 & 602.6 \\ \underline{\text{Cost of Goods Sold}} & (192.1) & (175.4) & (207.1) & (248.3) & (295.8)\\ \text{Gross Profit} & 209.8 & 186.2 & 222.5 & 265.3 & 306.8\\ \text{Sales and Marketing} & (65.0) & (64.4) & (84.3) & (104.9) & (121.1)\\ \text{Administration} & (61.8) & (57.1) & (59.0) & (66.9) & (79.8)\\ \underline{\text{Depreciation $\And$ Amortization}} & (27.5) & (26.3) & (32.5) & (38.3) & (40.1)\\ \text{EBIT} & 55.5 & 38.4 & 46.7 & 55.2 & 65.8\\ \underline{\text{Interest Income (Expense)}} & (32.4) & (31.8) & (32.0) & (37.0) & (40.9)\\ \text{Pretax Income} & 23.1 & 6.6 & 14.7 & 18.2 & 24.9\\ \underline{\text{Income Tax}} & (8.1) & (2.3) & (5.1) & (6.4) & (8.7)\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Shares outstanding (millions)} & 56.8 & 56.8 & 56.8 & 56.8 & 56.8\\ \text{Earnings per share} & \$0.26 & \$0.08 & \$0.17 & \$0.21 & \$0.29\\ \text{Balance Sheet} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Assets}\\ \text{Cash} & 49.4 & 68.0 & 91.7 & 80.4 & 83.6\\ \text{Accounts Receivable} & 87.6 & 70.6 & 69.3 & 77.4 & 84.2\\ \text{Inventory} & 33.5 & 32.2 & 27.3 & 30.2 & 35.8\\ \text{Total Current Assets} & 170.5 & 170.8 & 188.3 & 188.0 & 203.6\\ \text{Net Property, Plant $\And$ Equip.} & 244.3 & 243.3 & 306.1 & 349.6 & 347.9\\ \text{Goodwill $\And$ Intangibles} & 365.5 & 365.5 & 365.5 & 365.5 & 365.5\\ \text{Total Assets} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Liabilities $\And$ Stockholders’ Equity}\\ \text{Accounts Payable} & 18.8 & 18.8 & 22.4 & 27.1 & 30.3\\ \text{Accrued Compensation} & 7.6 & 6.3 & 7.5 & 7.7 & 9.4\\ \text{Total Current Liabilities} & 26.4 & 25.1 & 29.9 & 34.8 & 39.7\\ \text{Long-term Debt} & 498.9 & 498.9 & 572.2 & 597.5 & 597.5\\ \text{Total Liabilities} & 525.3 & 524 & 602.1 & 632.3 & 637.2\\ \text{Stockholders’ Equity} & 255.0 & 255.6 & 257.8 & 270.8 & 279.8\\ \text{Total Liabilities $\And$ Stockholders’ Equity} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Statement of Cash Flows} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Depreciation $\And$ Amortization} & 27.5 & 26.3 & 32.5 & 38.3 & 40.1\\ \text{Chg. in Accounts Receivable} & 3.9 & 17.0 & 1.3 & (8.1) & (6.8)\\ \text{Chg. in Inventory} & (2.9) & 1.3 & 4.9 & (2.9) & (5.6)\\ \underline{\text{Chg. in Payables $\And$ Accrued Comp.}} & 1.7 & (1.3) & 4.8 & 4.9 & 4.9\\ \text{Cash from Operations} & 45.2 & 47.6 & 53.1 & 44.0 & 48.8\\ \underline{\text{Capital Expenditures}} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Cash from Investing Activities} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Dividends Paid} & (5.2) & (5.2) & (5.2) & (5.2) & (5.6)\\ \text{Sale (or purchase) of stock} & — & — & — & — & —\\ \underline{\text{Debt Issuance (Pay Down)}} & — & — & 73.3 & 25.3 & —\\ \text{Cash from Financing Activities} & (5.2) & (5.2) & 68.1 & 20.1 & (5.6)\\ \text{Change in Cash} & 13.4 & 18.6 & 23.7 & (11.3) & 3.2\\ \text{Mydeco Stock Price} & \$7.02 & \$3.55 & \$5.86 & \$8.33 & \$11.57\\ \end{array}$$

$

The National Oceanic and Atmospheric Administration reports the following record high temperatures (degrees Fahrenheit) in 50 U.S. cities. These data are also provided in the file XR02056.

,City Temperature Mobile, AL 105 Juneau, AK 90 Phoenix, AZ 122 Little Rock, AR $\quad 112$ Los Angeles, CA $\quad 110$ Denver, CO 105 Hartford, CT 102 Wilmington, DE 102 Miami, FL 98 Atlanta, GA $\quad 105$ Honolulu, HI 95 Boise, 10 111 Chicago, IL 104 Indianapolis, IN $\quad 104$ Des Moines, IA 108 Wichita, KS 113 Louisville, KY 106 New Orleans, LA 102 Portland, ME 103 Baltimore, MD 105 Boston, MA 102 (continued)

City Temperature Detroit, MI 104 Duluth, MN 97 Jackson, MS 107 St. Louis, MO $\quad 107$ Great Falls, MT $\quad 106$ Omaha, NE $\quad 114$ Reno, NV 108 Concord, $\mathrm{NH}$ Atlantic City, NJ 106 Albuquerque, NM $\quad 107$ Buffalo, NY 99 Charlotte, NC $\quad 104$ Bismarck, ND $\quad 111$ Cleveland, $\mathrm{OH}$ Oklahoma City, OK $\quad 110$ Portland, OR $\quad 107$ Pittsburgh, PA 103 Providence, RI $\quad 104$ Columbia, SC 107 Sioux Falls, SD $\quad 110$ Nashille, TN $\quad 107$ Houston, TX 109 Salt Lake City, UT $\quad 107$ Burlington, VT 101 Norfolk, VA 104 Seattle, WA 100 Charleston, WV 104 Milwaukee, WI 103

$$\begin{array}{ll}\text { Cheyenne, WY } & 100\end{array}$$

d. Based on the frequency distribution obtained in part (b), draw a histogram and a relative frequency polygon to describe the data.

See Table down below showing financial statement data and stock price data for Mydeco Corp. Suppose Mydeco's costs and expenses had been the same fraction of revenues in $2013-2016$ as they were in $2012$. What would Mydeco's EPS have been each year in this case?

2012–2016 Financial Statement Data and Stock Price Data for Mydeco Corp

Mydeco Corp. 2012–2016 $\hspace{30mm}$ (All data as of fiscal year end; in $million)$

$$\begin{array}{lccccc} \text{Income statement} & 2012 & 2013 & 2014 & 2015 & 2016 \\ \text{Revenue} & 401.9 & 361.6 & 429.6 & 513.6 & 602.6 \\ \underline{\text{Cost of Goods Sold}} & (192.1) & (175.4) & (207.1) & (248.3) & (295.8)\\ \text{Gross Profit} & 209.8 & 186.2 & 222.5 & 265.3 & 306.8\\ \text{Sales and Marketing} & (65.0) & (64.4) & (84.3) & (104.9) & (121.1)\\ \text{Administration} & (61.8) & (57.1) & (59.0) & (66.9) & (79.8)\\ \underline{\text{Depreciation $\And$ Amortization}} & (27.5) & (26.3) & (32.5) & (38.3) & (40.1)\\ \text{EBIT} & 55.5 & 38.4 & 46.7 & 55.2 & 65.8\\ \underline{\text{Interest Income (Expense)}} & (32.4) & (31.8) & (32.0) & (37.0) & (40.9)\\ \text{Pretax Income} & 23.1 & 6.6 & 14.7 & 18.2 & 24.9\\ \underline{\text{Income Tax}} & (8.1) & (2.3) & (5.1) & (6.4) & (8.7)\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Shares outstanding (millions)} & 56.8 & 56.8 & 56.8 & 56.8 & 56.8\\ \text{Earnings per share} & \$0.26 & \$0.08 & \$0.17 & \$0.21 & \$0.29\\ \text{Balance Sheet} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Assets}\\ \text{Cash} & 49.4 & 68.0 & 91.7 & 80.4 & 83.6\\ \text{Accounts Receivable} & 87.6 & 70.6 & 69.3 & 77.4 & 84.2\\ \text{Inventory} & 33.5 & 32.2 & 27.3 & 30.2 & 35.8\\ \text{Total Current Assets} & 170.5 & 170.8 & 188.3 & 188.0 & 203.6\\ \text{Net Property, Plant $\And$ Equip.} & 244.3 & 243.3 & 306.1 & 349.6 & 347.9\\ \text{Goodwill $\And$ Intangibles} & 365.5 & 365.5 & 365.5 & 365.5 & 365.5\\ \text{Total Assets} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Liabilities $\And$ Stockholders’ Equity}\\ \text{Accounts Payable} & 18.8 & 18.8 & 22.4 & 27.1 & 30.3\\ \text{Accrued Compensation} & 7.6 & 6.3 & 7.5 & 7.7 & 9.4\\ \text{Total Current Liabilities} & 26.4 & 25.1 & 29.9 & 34.8 & 39.7\\ \text{Long-term Debt} & 498.9 & 498.9 & 572.2 & 597.5 & 597.5\\ \text{Total Liabilities} & 525.3 & 524 & 602.1 & 632.3 & 637.2\\ \text{Stockholders’ Equity} & 255.0 & 255.6 & 257.8 & 270.8 & 279.8\\ \text{Total Liabilities $\And$ Stockholders’ Equity} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Statement of Cash Flows} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Depreciation $\And$ Amortization} & 27.5 & 26.3 & 32.5 & 38.3 & 40.1\\ \text{Chg. in Accounts Receivable} & 3.9 & 17.0 & 1.3 & (8.1) & (6.8)\\ \text{Chg. in Inventory} & (2.9) & 1.3 & 4.9 & (2.9) & (5.6)\\ \underline{\text{Chg. in Payables $\And$ Accrued Comp.}} & 1.7 & (1.3) & 4.8 & 4.9 & 4.9\\ \text{Cash from Operations} & 45.2 & 47.6 & 53.1 & 44.0 & 48.8\\ \underline{\text{Capital Expenditures}} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Cash from Investing Activities} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Dividends Paid} & (5.2) & (5.2) & (5.2) & (5.2) & (5.6)\\ \text{Sale (or purchase) of stock} & — & — & — & — & —\\ \underline{\text{Debt Issuance (Pay Down)}} & — & — & 73.3 & 25.3 & —\\ \text{Cash from Financing Activities} & (5.2) & (5.2) & 68.1 & 20.1 & (5.6)\\ \text{Change in Cash} & 13.4 & 18.6 & 23.7 & (11.3) & 3.2\\ \text{Mydeco Stock Price} & \$7.02 & \$3.55 & \$5.86 & \$8.33 & \$11.57\\ \end{array}$$

$

The Svenson Corporation manufactures cellular modems. It manufactures its own cellular modem circuit boards (CMCB), an important part of the cellular modem. It reports the following cost information about the costs of making CMCBs in 2014 and the expected costs in 2015:

$$\begin{array}{lcc} &\textbf{Current Costs}&\textbf{Expected }\\ &\textbf{in 2014} &\textbf{Costs in 2015}\\\hline \text{Variable manufacturing costs}\\ \quad\text{Direct material cost per CMCB} &\$~~~~~~180 &\$~~~~~~170\\ \quad\text{Direct manufacturing labor cost per CMCB} &~~~~~~~~~~50 &~~~~~~~~~~45\\ \quad\text{Variable manufacturing cost per batch for setups, materials }\\ \quad\text{handling, and quality control}& ~~~~1,600 &~~~~1,500\\ \text{Fixed manufacturing cost}\\ \quad\text{Fixed manufacturing overhead costs that can be avoided if CMCBs }\\ \quad\text{are not made} &320,000 &320,000\\ \quad\text{Fixed manufacturing overhead costs of plant depreciation,} \\ \quad\text{insurance, and administration that cannot be avoided even if }\\ \quad\text{CMCBs are not made}& 800,000 &800,000 \end{array}$$

Svenson manufactured 8,000 CMCBs in 2014 in 40 batches of 200 each. In 2015, Svenson anticipates needing 10,000 CMCBs. The CMCBs would be produced in 80 batches of 125 each.

The Minton Corporation has approached Svenson about supplying CMCBs to Svenson in 2015 at $300 per CMCB on whatever delivery schedule Svenson wants.

1. Calculate the total expected manufacturing cost per unit of making CMCBs in 2015.

2. Suppose the capacity currently used to make CMCBs will become idle if Svenson purchases CMCBs from Minton. On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations.

3. Now suppose that if Svenson purchases CMCBs from Minton, its best alternative use of the capacity currently used for CMCBs is to make and sell special circuit boards (CB3s) to the Essex Corporation. Svenson estimates the following incremental revenues and costs from CB3s:

On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations.

See Table down below showing financial statement data and stock price data for Mydeco Corp.

Was Mydeco able to improve its ROIC in $2016$ relative to what it was in $2012$?

2012–2016 Financial Statement Data and Stock Price Data for Mydeco Corp

Mydeco Corp. 2012–2016 $\hspace{30mm}$ (All data as of fiscal year end; in $million)$

$$\begin{array}{lccccc} \text{Income statement} & 2012 & 2013 & 2014 & 2015 & 2016 \\ \text{Revenue} & 401.9 & 361.6 & 429.6 & 513.6 & 602.6 \\ \underline{\text{Cost of Goods Sold}} & (192.1) & (175.4) & (207.1) & (248.3) & (295.8)\\ \text{Gross Profit} & 209.8 & 186.2 & 222.5 & 265.3 & 306.8\\ \text{Sales and Marketing} & (65.0) & (64.4) & (84.3) & (104.9) & (121.1)\\ \text{Administration} & (61.8) & (57.1) & (59.0) & (66.9) & (79.8)\\ \underline{\text{Depreciation $\And$ Amortization}} & (27.5) & (26.3) & (32.5) & (38.3) & (40.1)\\ \text{EBIT} & 55.5 & 38.4 & 46.7 & 55.2 & 65.8\\ \underline{\text{Interest Income (Expense)}} & (32.4) & (31.8) & (32.0) & (37.0) & (40.9)\\ \text{Pretax Income} & 23.1 & 6.6 & 14.7 & 18.2 & 24.9\\ \underline{\text{Income Tax}} & (8.1) & (2.3) & (5.1) & (6.4) & (8.7)\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Shares outstanding (millions)} & 56.8 & 56.8 & 56.8 & 56.8 & 56.8\\ \text{Earnings per share} & \$0.26 & \$0.08 & \$0.17 & \$0.21 & \$0.29\\ \text{Balance Sheet} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Assets}\\ \text{Cash} & 49.4 & 68.0 & 91.7 & 80.4 & 83.6\\ \text{Accounts Receivable} & 87.6 & 70.6 & 69.3 & 77.4 & 84.2\\ \text{Inventory} & 33.5 & 32.2 & 27.3 & 30.2 & 35.8\\ \text{Total Current Assets} & 170.5 & 170.8 & 188.3 & 188.0 & 203.6\\ \text{Net Property, Plant $\And$ Equip.} & 244.3 & 243.3 & 306.1 & 349.6 & 347.9\\ \text{Goodwill $\And$ Intangibles} & 365.5 & 365.5 & 365.5 & 365.5 & 365.5\\ \text{Total Assets} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Liabilities $\And$ Stockholders’ Equity}\\ \text{Accounts Payable} & 18.8 & 18.8 & 22.4 & 27.1 & 30.3\\ \text{Accrued Compensation} & 7.6 & 6.3 & 7.5 & 7.7 & 9.4\\ \text{Total Current Liabilities} & 26.4 & 25.1 & 29.9 & 34.8 & 39.7\\ \text{Long-term Debt} & 498.9 & 498.9 & 572.2 & 597.5 & 597.5\\ \text{Total Liabilities} & 525.3 & 524 & 602.1 & 632.3 & 637.2\\ \text{Stockholders’ Equity} & 255.0 & 255.6 & 257.8 & 270.8 & 279.8\\ \text{Total Liabilities $\And$ Stockholders’ Equity} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Statement of Cash Flows} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Depreciation $\And$ Amortization} & 27.5 & 26.3 & 32.5 & 38.3 & 40.1\\ \text{Chg. in Accounts Receivable} & 3.9 & 17.0 & 1.3 & (8.1) & (6.8)\\ \text{Chg. in Inventory} & (2.9) & 1.3 & 4.9 & (2.9) & (5.6)\\ \underline{\text{Chg. in Payables $\And$ Accrued Comp.}} & 1.7 & (1.3) & 4.8 & 4.9 & 4.9\\ \text{Cash from Operations} & 45.2 & 47.6 & 53.1 & 44.0 & 48.8\\ \underline{\text{Capital Expenditures}} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Cash from Investing Activities} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Dividends Paid} & (5.2) & (5.2) & (5.2) & (5.2) & (5.6)\\ \text{Sale (or purchase) of stock} & — & — & — & — & —\\ \underline{\text{Debt Issuance (Pay Down)}} & — & — & 73.3 & 25.3 & —\\ \text{Cash from Financing Activities} & (5.2) & (5.2) & 68.1 & 20.1 & (5.6)\\ \text{Change in Cash} & 13.4 & 18.6 & 23.7 & (11.3) & 3.2\\ \text{Mydeco Stock Price} & \$7.02 & \$3.55 & \$5.86 & \$8.33 & \$11.57\\ \end{array}$$

$

The Air Force Reserve’s 53rd Weather Reconnaissance Squadron, better known as the Hurricane Hunters, fly into the eye of tropical cyclones in their WC-130 Hercules aircraft to collect and report vital meteorological data for advance storm warnings. The data are relayed to the National Hurricane Center in Miami, Florida, for broadcasting emergency storm warnings on land. According to the National Oceanic and Atmospheric Administration, the 2008 Atlantic hurricane season marked “... the end of a season that produced a record number of consecutive storms to strike the United States and ranks as one of the more active seasons in the 64 years since comprehensive records began.” A total of 16 named storms formed this season, including eight hurricanes, five of which

$$\begin{array}{l|c|c} \hline \text { Storm } & \text { Date } & \text { Max wind (mph) } \\ \hline \text { Arthur } & 05 / 30-06 / 02 & 45 \\ \text { Bertha } & 07 / 03-07 / 20 & 125 \\ \text { Cristobal } & 07 / 18-07 / 23 & 65 \\ \text { Dolly } & 07 / 20-07 / 25 & 100 \\ \text { Edouard } & 08 / 03-08 / 06 & 65 \\ \text { Fay } & 08 / 15-08 / 26 & 65 \\ \text { Gustav } & 08 / 25-09 / 04 & 150 \\ \text { Hanna } & 08 / 28-09 / 07 & 80 \\ \text { Ike } & 09 / 01-09 / 14 & 145 \\ \text { Josephine } & 09 / 02-09 / 06 & 65 \\ \text { Kyle } & 09 / 25-09 / 29 & 80 \\ \text { Laura } & 09 / 29-10 / 01 & 60 \\ \text { Marco } & 10 / 06-10 / 08 & 65 \\ \text { Nana } & 10 / 12-10 / 14 & 40 \\ \text { Omar } & 10 / 13-10 / 18 & 135 \\ \text { Paloma } & 11 / 05-11 / 10 & 145 \\ \hline \end{array}$$