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IS102CAT Mid-Term Test

Sample 1

Please write clearly your name and SMU user ID in the spaces provided below now.
Name: ________________________________

UserID:_______________
Seat Number:_______________

Time: 1.5 hours


Requirements: Open book, Computer with Excel.
Restrictions: No communications of any kind (i.e. mobile phone, email, chat, etc.).
This test comprises question 1 (8 marks), question 2 (9 marks) and question 3 (8 marks
plus 4 extra bonus marks), giving a total of 25 and 4 bonus marks.
The maximum total you can get from this test is 25 marks, corresponding to the 25% for
the course total.
Please do not turn over this page until the professor gives the instruction to do so.

For each question, it is advisable to read through the whole question first before doing
any of its parts.
Write your answers in the space provided in each question.
Softcopy submission of your working is not required.

Question

Mark

1
2
3
Total

2006Term2/LTY

Question 1 (8 marks)
Sam needs to rent a car for his upcoming trip. CheapWheels charges $20.25 per day
plus $.14 a mile. Easy Rider charges $18.25 a day plus $.22 a mile. Sam plans to do a
lot of driving on his 3-day trip.
a) Sketch an Excel model to support your analysis.

(3 marks)

Formulas for the following key cells are:

b) Which company should Sam go with? Explain your choice.

(2 marks)

c) At what mileage will Sam be indifferent to either rental company? If the trip is shorter
than 3 days, will the indifferent mileage be longer or shorter?
(2 marks)

d) Does the difference in cost go up or down as mileage increases?

2006Term2/LTY

(1 mark)

Question 2 (9 marks)
Alphonso borrowed $50,000 from Timmy and promised to return the money in monthly
installments over 2 years. Each month, the repayment amount to Timmy should rightly
be about equal for ease of tracking. Since Alphonso does not have a steady income and
is not sure he can meet all the planned (equal) payments, he asked to structure the
payments such that he will try to pay the required amount as far as possible. If he is
short of money, he must pay at least 70% of the planned payment, and if he has excess
money, he can pay more than the planned payment. The planned monthly payment
amount for the remaining loan balance is always recomputed each month as if it is a
fresh loan for the remaining number of months. The agreed interest rate for the loan is
4% per annum.
a) Sketch an Excel model to support their analysis. Include columns to show the
monthly interest payment, loan repayment, loan outstanding and planned and actual
repayments.
(3 marks)

Formulas for the following key cells are:

2006Term2/LTY

b) Assume first payment is due at the beginning of the next month.

(3 marks)

The planned monthly amount Alphonso needs to repay is $___________.


The minimum amount he has to repay is $ _____________.
c) Alphonso did so well in his business that he repaid Timmy $3,000 and $2,600 in
months 1 and 2 respectively.
(3 marks)
The planned monthly payment is now $____________.
The minimum amount he has to repay is $ _____________.

2006Term2/LTY

Question 3 (8 marks + 4 extra bonus marks)


High quality Arabica coffee plants grow practically wild on the upper slopes of the
foothills behind a village in East Timor. International prices for green Arabica coffee
beans have recently plummeted, moving from over $3.50 per kg in 1998 to about $0.50
per kg in 2006. As a result, the villagers have abandoned the coffee plantation to focus
on subsistence farming to feed their families. The village chief (chafe) is deciding if he
should marshal the villagers to return to the plantation again.
The cost of hiring villagers to maintain the coffee plantation is about $ 5,000 per month.
With better upkeep, the plantation's yield is expected to improve. The expected output
yields are 40, 60, 69, 73 and 74 tonne for 0, 1, 2, 3 and 4 months of upkeep
respectively. One tonne (metric ton) weights 1,000 kg. In addition, harvesting the
coffee for sale should the chafe choose to do so would cost $0.70 per kg. Other than
wages, all money spent and profit earned go into the village cooperative, co-owned by
every family in the village.
a) Using the table below as a starting point, create a model to help the chafe make his
decisions.
(3 marks)

Formulas for the key cells are as follows:


Maintenance cost (/mth)
Harvest cost (/kg)
Yield (tonne)
Profit (no harvest)
Profit (with harvest)

2006Term2/LTY

D4
E4
D7:I7

<Input>
<Input>
<Input>

D10:D22

______________________________________

E10

______________________________________

The major decisions to make are

b) If the coffee price this coming season is expected to be $0.75 per kg, what should he
do? What if the coffee price per kg goes up to $0.80, $0.85, $0.90, $0.95 or even
$1.00? Explain how the profit changes with changes in the price.
(3 marks)

2006Term2/LTY

c) It can be assumed that coffee price behaves like a random walk: the magnitude of
annual percentage change has a stationary distribution and the coffee price is equally
likely to increase or decrease. Using the table below, sketch out the model of how
you would now simulate the 2007 coffee price.
(2 marks)

Formulas for the following key cells are:

Formulas for the key cells are as follows:


This Years Price

C49

<Input>

Change Direction (+1 or -1)

E49

_____________________________________

Next Years Projected Price

F49

_____________________________________

Price %Change magnitude

D53

____________________________

Simulated 2007 Price

B64

____________________________

d) From the simulation,

(Extra bonus: 4 marks)

coffee price for 2007 is expected to be _______________ and


its standard deviation is ________________.
Based on this simulation, the recommended actions for 2007 are

2006Term2/LTY