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Finance and Operations

Q1. Forecast the production for the next 2 years when the production quantities in thousand tones for the last ten years are 150, 165, 170, 155, 170, 185, 210, 225, 235, 248

Analyse the implications of the results using the following methods:

                 i.        Simple average

                ii.        Three year weighted moving average with weights of 1, 3 and 4 for the first year, second year and third year respectively  considered for calculating averages

              iii.        Moving average (3 years and 5 years)

              iv.        Exponential smoothing (for smoothing constants, 0.2 , 0.5 and 0.8)

Q2. Alpha Electronic Company produces 2000 TV sets in a year for which it needs an equal number of tubes of certain type. Each tube costs Rs. 10/- and the cost to hold a tube in stock for a year is Rs. 2.40 / unit / annum. Besides, the cost of placing an order is Rs. 150/- per order. The number of working days in the company is 250 and the lead time is 15 working days. Determine:-

    (a)        Economic Order Quantity.

    (b)        Re-order level.

     (c)        Annual total variable cost.

    (d)        Inventory cycle time.

    (e)        Monetary value of optimal order quantity.

      (f)        Rupee value of average inventory.

Q3. A small project consists of eight activities and has following characteristics:-

Activity	Preceding	Time Estimate (in weeks)
	Activity	Most optimistic (to)	Most likely M	Most pessimistic (tp)
A	-	2	6	12
B	-	10	12	26
C	A	8	9	10
D	A	10	15	20
E	A	7	7.5	11
F	B,C	9	9	9
G	D	3	3.5	7
H	E,F,G	5	5	5

  (i)        Draw the network and determine the critical path.

 (ii)        Find the float for all the activities.

(iii)        If a 30 week deadline is imposed, what is the probability that the project will be completed on time?

(iv)        If the project manager wants to be 99% sure that the project will be completed on the scheduled date, how many weeks before that date should he start the project work?

CASE STUDY – 1

Jaycee Industries manufactures Radios. The company wishes to make approximately 290 radios per day. The following table lists all basic tasks performed along the assembly line.

Task	Operation Time (min)	Immediate Preceding
		Tasks
A	0.20	-
B	0.30	A
C	0.40	A
D	0.60	B,C
E	0.80	-
F	0.80	E
G	0.60	D,E
H	1.20	F,G
I	1.20	H
J	1.00	I
K	1.90	J
Total	9.00

The shop operates five days per week and two shifts per day. The company provides two coffee breaks of ten minutes each during an eight hour day.

(a) Group the activities into the most efficient arrangement.

(b) What is the cycle time of your arrangement?

(c) What is the balance delay and percentage?

CASE STUDY – 2

Blue Dart, an India based company, is considering expanding its operations into a foreign country. The required investment at Time = 0 is Rs. 10 million. The firm forecasts total cash inflows of Rs. 4 million per year for 2 years, Rs. 6 million for the next two years, and then a possible terminal value of Rs. 8 million. In addition, due to political risk factors, Blue Dart believes that there is a 50 percent chance that the gross terminal value will be only Rs. 2 million and that there is a 50 percent chance that it will be Rs. 8 million. However, the government of the host country will block 20 percent of all cash flows. Thus, cash flows that can be repatriated are 80 percent of those projected. Blue Darts’ cost of capital is 15 percent, but it adds one percentage point to all foreign projects to account for exchange rate risk. Under these conditions, what is the project’s NPV?

CASE STUDY-3

Hindustan Construction Corporation arranged a two-year, $1,000,000 loan to fund a foreign project. The loan is denominated in Mexican pesos, carries a 10 percent nominal rate, and requires equal semiannual payments. The exchange rate at the time of the loan was 5.75 pesos per dollar but immediately dropped to 5.10 (pesos per dollars) before the first payment came due. The loan carried no exchange rate protection and was not hedged by Hindustan Construction Corporation in the foreign exchange market. Thus, Hindustan Construction Corporation must convert U.S. funds to Mexican pesos to make its payments. If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period, what effective interest rate will Hindustan Construction Corporation end up paying on the foreign loan?