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Words 1233

Pages 5

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REV. APRIL 18, 1990

ANIRUDH DHEBAR

Merton Truck Company

At Merton's monthly planning meeting in July 1988, the company's president expressed dissatisfaction with Merton's financial performance during the six-month period January-June 1988.

"I know we are operating at capacity in some of our production lines," he remarked to Merton's controller and sales and production managers. "But surely we can do something to improve our financial position. Maybe we should change our product mix. We don't seem to be making a profit on our Model 101 truck. Why don't we just stop making it altogether? Maybe we should purchase engines from an outside supplier, relieving the capacity problem in our engine assembly department.

Why don't the three of you get together, consider the different options, and come up with a recommendation?" Production Possibilities and Standard Costs

No

The Merton Truck Company manufactured two specialized models of trucks, Model 101 and

Model 102, in a single plant in Wheeling, Michigan. Manufacturing operations were grouped into four departments: engine assembly, metal stamping, Model 101 assembly, and Model 102 assembly.

Do

Capacity in each department was expressed in manufacturing machine-hours available (net of maintenance downtime). Machine-hours available, in conjunction with machine-hours required for each truck model in each department, determined Merton's "production possibilities." For example, the company's engine assembly capacity was sufficient to assemble engines for either 4,000 Model 101 trucks per month (4,000 machine-hours available ÷ 1 machine-hour required per truck) or 2,000

Model 102 trucks per month (4,000 machine-hours available ÷ 2 machine-hours per truck), if devoted fully to either model. Of course, Merton could also assemble engines for both models: for example, if…...

...Evaluate of the Merton Model for credit risk analysis The KMV-Merton model proposed by Robert Merton(1974)is an application of classic option pricing theory and as a logical extension of the Black-Scholes(1973)option pricing framework.Merton’s approach assess the credit risk of a firm by characterizing the firm’s equity as a call option on the underling value of the firm with a strike price equal to the face value of the firm’s debt and a time-to-maturity of T.By put-call parity,the value of the firm’s debt is equal to the value of a risk-free discount bond minus the value of a put option written on the firm with a strike price equal to the face value of debt and a time-to-maturity of T. To some extent,our calculated probability of default is reasonable.In fact,dynamics of default probability comes mostly from the dynamics of the equity values.KMV model can always quickly reflect deterioration in credit quality.Normally, changes in EDF tend to anticipate at least one year earlier than the downgrading of the issuer by rating agencies such as S&P’s and Moody’s.It recognizes that the market value of debt is unobservable and thus use equity to infer debt value. The calculated probability of default is more related to the firm’s characteristics than credit rating approach and thus more sensitive to change in the quality of obligors.Because stock price information is predictive and highly responsive, the use of market information to compute credit risk can gain more accurate...

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...1. What is the currency risk exposure facing Merton? What dimension is more relevant in the case of Merton: transaction exposure, translation exposure, or economic exposure? Merton Electronics is a company in the United States that imports from both Japanese and Taiwanese suppliers, to then be distributed nationally. Both suppliers invoice in their local currencies (Japanese Yen and Taiwanese Dollars, respectively). The mechanics of payments are as follows: Merton places an order, and the Asian supplier ships within 60 days. Payments are done 30 days from the end of the delivery month, but the spot price on the last day of the month in which the order is placed is used for the invoice. In other words, Merton faces a 90-day transaction exposure for each order, which also seems to be the most relevant dimension. Indeed, there does not seem to be obvious translation exposure since this is not an issue of accounting differences. Merton’s competitive position is somewhat affected by this currency risk, but this economic exposure seems of second order compared to the transaction exposure described in the case. 2. In the situation facing Merton Electronics, should currency risk be hedged? Why? Yes. First, the company is family-owned and nothing in the case seems to indicate that the Merton family was able (or willing) to diversify its portfolio internationally. Second, Merton Electronics relies on its cash-flows to finance its future investments in new computers, office......

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...Memorandum To: Richard Merton, President, Merton Truck Company From: Khushdeep Kaur Date: October 22, 2013 ------------------------------------------------- RE: Merton truck company financial performance and product mix concerns Introduction: As requested an analysis was done to find out the most suitable product mix for Merton Truck Company in an effort to find out the combination that maximizes contribution and whether Truck 101 is really losing money or not. Analysis also aimed at finding out that whether the company should rent additional capacity by purchasing additional engines from an outside supplier to relieve the capacity problem in the engine assembly department. The calculations were based on the revenue for each model, machine hours required for each job, total machine hours available per month and variable cost per truck. Discussion: Currently Merton’s is producing 1000 model 101 trucks per month and 1500 model 102 trucks per month. At this level Model 102 assembly and engine assembly were operating at capacity and metal stamping at 83.3% capacity and Model 101 assembly at 40% capacity. Data used for analysis: Data regarding given capacity of the engine assembly line, machine hours availability and requirement for completing various manufacturing jobs, standard product costs for each model and the overhead budget for 2012. Method: For finding the product mix that maximizes contribution a linear programming model was prepared using, maximize......

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...Executive Summary The Problem: Merton Truck Company has been experiencing difficulties related to their financial performance, and they do not know which is the optimal product mix to maximize profits and performance. Group 2 was asked to make recommendations and analyze the given situation to eliminate the difficulties and come up with the right product mix and the optimal solutions considering different alternatives and scenarios. The Solution: Linear Programming was used to analyze the different alternatives to arrive at the optimal solution. The optimal product mix was calculated to be 2000 units of model 101 and 1000 units of model 102. In the next pages you will see the answers to the different questions asked which shows how different alternatives and interpretations could affect the optimal solution and the final decision. Recommendations and conclusion: We recommend that Merton Truck Company adopt the suggest solutions in our analysis in order to achieve better financial results and impose new policies later on to avoid such setbacks in the future. Following our recommendations, the firm should be able to maximize the profits using the optimal product mix. Model Description The Problem Merton Truck Company is not optimizing contribution from its truck lines especially model 101. The company is contemplating stopping the production of model 101 trucks. Management is in a dilemma on what approach to take in resolving this problem. In addition, two of......

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...L&T MEP 5 Module: International Financial Management - I Faculty: Samir K Barua No. of Sessions: 12 (6 in April and 6 in May, 2014) Textbook: International Financial Management by Cheol S Eun and Bruce G Resnick (4th Edition) Cases: 1. MG Refining & Marketing, Inc. (A) 2. Westwood Plastics Inc. In addition, end of the chapter exercises would be used in the class to clarify and demonstrate use of the underlying concepts. Session 1&2 - Friday, April 11, 2014 The issues covered in the sessions would include implications of globalization of business; theory of comparative advantage; basics of balance of payments; quotation of exchange rates; spot, forward, futures and options markets in currencies; interest rate parity; purchasing power parity; Fisher open condition; managing transaction exposure. Read: Chapters 1, 3, 5, 6 and 7 Session 3 - Saturday, April 12, 2014 Read: Chapters 1, 3, 5, 6 and 7 Prepare: Case 1 - MG Refining & Marketing, Inc. (A) Session 4 - Saturday, April 12, 2014 The issues covered in the sessions would include managing transaction exposure; managing economic exposure; managing translation exposure; interest rate and currency swaps; raising resources from global bond securities markets. Read: Chapters 2, 4, 8, 9, 10 Session 5&6 - Saturday, April 12, 2014 Read: Chapters 2, 4, 8, 9, 10 Prepare: Case 2 - Westwood Plastics Inc. Positioning of the Module: This module has......

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...developed by Merton, is one of many sociological theories offering an explanation for deviant behaviour. All strain theories believe that individual strain, the frictions experienced by an individual to meet their needs, is the motivational mechanism that causes criminal activity. Mertons strain theory initially states that deviant behaviour is the result of strain between the goals that are encouraged in society and what societies structures will allow an individual to achieve. This ‘strain’ is most likely to affect those who make up the working class, as due to their cultural deprivation it is harder for them to succeed in our middle class centred society. As a result of this strain Merton recognises five responses to which he believes all members of a society fit into, these are conformity, where people adhere to both goals and means, innovation, where people reject the means but still pursue the goal, ritualism, where the means are used but the goal is lost, retreatism, where goals and means are rejected, and rebellion, where different goals and means substitute societies unattainable one. Despite creating a starting point for various other theories, Mertons theory is criticised on several points, including (but not only) the absence of any mention of non-utilitarian crimes, as well as his assumption of value consensus, it may be possible that deviants have never aspired to conformity. A.K Cohens (1955) theory on Status Frustration raises similar ideas as Mertons,......

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...assembly - 2X1 <=5000 hoursModel 102 assembly – 3X2<= 4500 hoursX1, X2 >= 0Hours here refer to no. of machine hours3) OPTIMUM RANGE Range Objective Coeff. X1 (2500 to 5000) | 3000 | X2 (3000 to 6000) | 5000 | {If the current unit contribution moves outside the range then our decisions would change} | 4) FEASIBILITY RANGE Engine (3500 to 4500) | 4000 | Metal stamp(5000 to 6500) | 6000 | Model 101(4000 to IE+30) | 5000 | Model 102(3000 to IE+30) | 4500 | | {If the current capacity moves outside the range, then the constraint's binding status will change} 5) No, Merton cannot continue to produce with the old optimal mix. They would now have to produce 1000 units of X1 and 1500 units of X2. This will be because of model 101 assembly now functioning only at 40% of its original capacity thus leading to loss of capacity of metal stamping too making it function at only 83.3% of its capacity. Solving by excel, optimal range for obj coeff. For X1 is 2500 -3000, since the contribution changes below 2500, therefore it will have an impact on the decision changing the number of units in the optimal mix. 6) Monthly availability of machine hours came down by 400 hours in metal stamping ie. 5600 hours department. This would not influence the binding status because this decrease is within the feasibility range......

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...legitimate means. Merton adapted Durkheim’s concept of anomie to explain deviance, his explanation combines two elements; structural factors and cultural factors. For Merton, deviance is the result of strain between the goal that a culture encourages individuals to achieve and what the institutional structure of society allows them to achieve legitimately. The ideology of the “American Dream” tells Americans that their society is meritocratic. However in reality many groups are disadvantaged and are denied opportunities for example they experience inadequate schooling. The resulting strain produces frustration and this in turn creates a pressure to resort to illegitimate means such as crime. Merton calls this pressure to deviate, the strain to anomie. The pressure to deviate is further increased by the fact that American culture puts more emphasis on achieving success at any price that upon doing it by legitimate means. Merton argues that an individual’s position in the social structure affects the way they adapt to the strain anomie, he says that logically there are five types of adaption; conformity, innovation, ritualism, retreatism and rebellion. Merton’s theory is criticised as it takes official statistics at face value which over represent working class crime so he sees crime as a mainly working class phenomenon. Marxists argue that it ignores the power of the ruling class to make and enforce the laws in ways that criminalise the poor but not the rich. Merton only......

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... MERTON TRUCK COMPANY Answer 1: Decision Variables: X1: Number of model 101 trucks to be produced X2: Number of model 102 trucks to be produced Objective: To maximise operational profit by optimally producing Model 101 and Model 102 trucks Maximise Z= 3000X1+5000X2 Subject to: X1+2X2<=4000 (Total machine hours available per month for engine assembly) 2X1+2X2<=6000 (Total machine hours available per month for Metal Stamping) 2X1<=5000 (Total machine hours available per month for Model 101 assembly) 3X2<=4500 (Total machine hours available per month for Model 102 assembly) X1, X2>=0 (Non-negativity constraints) Also X1 and X2 should be integers Answer 2: Optimal solution for maximum profit Model 101: 2000 units Model 102: 1000 units Optimum total contribution= 11,000,000$ Answer 3: Optimality range for objective variable: Objective coefficient | Lower side of range | Higher side of range | 3000 | 2500 | 5000 | 5000 | 3000 | 6000 | If the objective variables move outside the optimality range, the optimal solution for for number of units of Model 101 and Model 102 will change. Answer 4: Feasibility range for constraint’s capacity: Constraint | Final value | Lower side of range | Higher side of range | 4000 | 4000 | 3500 | 4500 | 6000 | 6000 | 5500 | 7000 | 5000 | 4000 | 4000 | Infinity | 4500 | 3000 | 3000 | Infinity | If the current capacity moves outside the optimality range, the optimal solution for number of units......

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...1 Mathematical Programming The Mathematical Programming Add-in constructs models that can be solved using the Solver Add-in or one of the solution add-ins provided in the collection. When the Math Programming add-in is installed, several new command lines are added to the OR_MM menu. The menu items under the title Math Programming create models of the different types. Selecting an item from this list causes a dialog box to be presented which constructs a mathematical programming model. The models created by the add-in are solved with the Excel Solver, the Jensen Network Solver or the Jensen LP/IP Solver. All are Excel add-ins. Documentation for these programs can be reached by clicking the links on the lower left. The Solver add-in comes with Excel, and it can solve linear programming, integer programming and nonlinear programming models. The Math Programming add-in automatically builds Solver models and calls the computational procedures that solve the problems. All four model types can be can be solved in this way. The Jensen LP/IP Solver solves linear or integer programming problems. It is available for the Linear/Integer Programming and Network Flow Programming model types. The Jensen Network Solver can solve pure or generalized network flow models. Both linear and integer problems can be solved. It is available for the Network Flow Programming or Transportation model types. Parametric analysis can be applied to any of the math programming models. Here one......

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...Operations Research Assignment 1: Merton Truck Company Submitted to Professor Sumit Kumar By Sneh Chandel PGPX 2015-16 Roll No – 1503010 On 27/01/2015 Problem 1 1. (a) The best product mix can be found out by plotting out the corner points of graph obtained to maximize function p = 3000x + 5000y – 8600000 The above function was derived by subtracting cost price of ‘Truck model 101’ & ‘Truck Model 102’ from sales price of ‘Truck model 101’ & ‘Truck Model 102’. Sales price is quoted in text as $39,000 for ‘Model 101’ and $38,000 for ‘Model 102’ Cost Price of truck was obtained from following table: | | | Model 101 | | | Model 102 | Direct Materials | | | $24000 | | | $20000 | Direct Labor | | | | | | | | Engine assembly | 1200 | | | 2400 | | | Metal Stamping | 800 | | | 600 | | | Final Assembly | 2000 | | | 1500 | | Total Direct Labor | | | $4000 | | | $4500 | Overhead | | | | | | | | Engine Assembly | 2525 | | | 4850 | | | Metal stamping | 3480 | | | 3080 | | | Final Assembly | 6200 | | | 3500 | | | | | 12205 | | | 11430 | Total | | | 40205 | | | 35930 | & the below table to calculate the variable overhead for individual trucks: Department | Variable overhead/unit 101 | Variable overhead/unit 102 | Engine assembly | 2100 | 4000 | Metal stamping | 2400 | 2000 | Model 101 Assembly | 3500 | | Model 102 Assembly | | 2500 | Total |......

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...In the summer of 1988, Merton Truck Company (“Merton”) was struggling with financial performance. A manufacturer of two specialized trucks (model 101 and model 102), Merton was conflicted with how to manage production and improve financial results. The executive team offered many different options to improve performance, but many were conflicted. For example, the sales manager suggested cancelling all production of model 101 trucks, whereas the controller suggested increasing model 101 production and curtailing model 102 production. To determine the best course of action for the company, an in-depth analysis of their current practices and optimal position is required. Currently, Merton produces 1,000 of Model 101 trucks and 1,500 of Model 102 trucks. The company is constrained by monthly machine hours available in their production facilities for each activity (SEE EXHIBIT 1). The contribution margins for each model are $3,000 for Model 101, $5,000 for Model 102 (SEE EXHIBIT 2). Each model provides contribution margin, so increasing production in any capacity should increase overall profits. However, the decision on which product to increase production of has caused some internal conflict because of the allocation of shared resources. At the moment, the production facilities are maximizing the engine assembly capacity. This is a shared resource by both Model 101 production and Model 102 production. On one hand, Model 101 production has lower contribution margin ($3,000), but...

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...MERTON TRUCK COMPANY COST SPECIFICATIONS | MODEL 101 | MODEL 102 | Direct Materials | 24000 | 20000 | Direct Labour | Engine assembly | 1200 | 2400 | Metal Stamping | 800 | 600 | Final Assembly | 2000 | 1500 | Total Direct Labour | 4000 | 4500 | Overhead | Engine assembly | 2100 | 4000 | Metal Stamping | 2400 | 3000 | Final Assembly | 3500 | 2500 | Total Overhead | 8000 | 8500 | | Selling Price | 39000 | 38000 | Total Variable Cost | 36000 | 33000 | Contribution Margin per Unit | 3000 | 5000 | | | | Fixed Overhead | Engine assembly | 1700000 | Metal Stamping | 2700000 | Final Assembly | 2700000 | 1500000 | Total Fixed Overhead | 8600000 | Objective is to: To maximise operational profit by optimally producing Model 101 and Model 102 trucks Maximise Profit = 3000 Model 101 + 5000 Model 102 Maximize Profit =? Model 101* units Model 101 + ? Model 102* units Model 102 – Fixed Overheads Subject to constraints: Engine assembly 1(Model 101) + 2 (Model 102) <= 4000 Metal Stamping 2(Model 101) + 2 (Model 102) <= 6000 Model 101 assembly 2(Model 101) + 0 (Model 102) <= 5000 Model 102 assembly 0(Model 101) + 3 (Model 102) <= 4500 Nonnegative Model 101 0(Model 101) >= 0 Non Negative Model 102 0(Model 102) >= 4000 ANSWER REPORT | | | | | | | | Objective Cell (Max) | | | | | | | Cell | Name | Original Value | Final Value |...

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... Carefour S.A. 1. What does interest‐rate parity say about international borrowing costs? What can a firm do to manage the exchange‐rate risk of foreign‐currency borrowing? How can Carrefour use Carrefour S.A. is a retail corporation located in france. The risk that as business’s operation or an invesment’s value will be affected by change in exchange rate. Carrefour is exposed to exchange rate risk because of foreign currency exposure from imported goods. This risk was being hedge by forward contract. Carrefour has a large exposure risk to the euro because of their hedging policy. Merton Electronics Case 2. What is currency‐risk exposure? How is it measured? Currency risk exposure is the dollar amount that is at risk if exchange rates move in an unfavorable direction. A company has currency exposure when the currencies for its expenditures and revenues are not the same. Future payments or distributions payable in foreign currency carry the risk that the foreign currency will depreciate in value before the foreign currency payment is received and converted into US dollars. Although there is a chance for profit, most businesses and lenders give up that chance in order to eliminate the risk of currency exchange loss. It is measured as the amount in receivables or payables the company has committed to, for which the exchange rate has not been determined ......

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...The article “Bureaucratic Structure and Personality”, by Robert Merton, discusses the purpose and structure of bureaucracies and the pros and cons of a bureaucratic approach to management. Merton examines the nature of interpersonal interactions within bureaucracies and looks at how bureaucrats interact with their clients or constituents. Bureaucracies are based on clear-cut divisions of integrated activities which are regarded as duties inherent in specific offices, while the offices are filed by individuals whose technical qualifications best fit the duties. Bureaucracies are set up to serve a specific purpose, such as administering social services. In order to achieve their goals, they operate according to an articulated set of highly detailed rules which regulate interaction through hierarchy and formality. These devices restrain the ability of individual bureaucrats to act impulsively or with personal motivations, contributing to the predictability of the bureaucracy. A level of flexibility can be attained in a bureaucracy through the appointment of executive level leadership by political officials. In this way the democratically expressed will of the people will be manifest within the bureaucracy. Below the appointed executive there are many trained and salaried experts who make decisions that are governed by the general, abstract, and clearly defined rules of the particular bureaucracy. Since these rules are general, the bureaucrat must assess each situation......

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