Report on Financial Mathematics and Business Statistics
Added on 2020-06-03
20 Pages3703 Words82 Views
FinanceStatistics and Probability
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Financial Mathematics and BusinessStatistics
Table of ContentsINTRODUCTION...........................................................................................................................1QUESTION 1..................................................................................................................................1A. Decision Analysis of three alternative actions........................................................................1B. Recommendation to Dreamcatcher with arguments...............................................................2QUESTION 2..................................................................................................................................3A. Identify three best opportunities..............................................................................................3B. Monthly payment....................................................................................................................3C. Partial monthly payment for remaining 18 years....................................................................4D. Recommendations...................................................................................................................4QUESTION 3..................................................................................................................................5A. Formulating the problem as linear program and using Excel’s solver for solution................5B. Recalculate the solution in case of renegotiation with supplier..............................................7C. Recalculation of the solution in case of marketing campaign.................................................8D. Short report, description and justifying the formulation with recommendations...................8QUESTION 4..................................................................................................................................9A. Methods of investment appraisal............................................................................................9B. Application of investment appraisal methods.......................................................................10C. Recommendations to Pierce Plc............................................................................................12QUESTION 5................................................................................................................................13A. Summarizing the distribution of expected grades for both exams and key characteristics...13B. Statistical Test.......................................................................................................................15C. Results...................................................................................................................................16CONCLUSION..............................................................................................................................16REFERENCES..............................................................................................................................17
INTRODUCTION Rising the uncertainty and complexities in the market requires thorough examination ofnecessary data set and predict future applying various mathematical and statistical tools andtechniques. In the practical world, every company applies various analytical methods and tools tolook at the past trends and determines future opportunity to stay competitively strong. Thisassignment is based on a number of case problems which will be resolved using distinctivetechniques like linear programming, decision-tree, investment appraisal techniques and statisticalmethods. Sound knowledge and the application of such tools will helps to determine the mostpreferable and justifiable option that is more profitable and contributes towards long-termsuccess. QUESTION 1A. Decision Analysis of three alternative actions Dreamcatcher is a game retailer that was established five year ago and had showed strongperformance since establishment. Therefore, now owners are looking for expanding the presencefor the prospective growth. After undertaking industry analysis and their own position in relationto key market players, company had found three possible courses of actions with three possiblescenarios. Managers want to know the best profitable alternative in which they must proceed. Itcan be done with the analysis through decision model that presents all the alternatives with theirprospective probability to come to a final point that gives maximum profit (Anderson andet.al.,2016). ScenariosProbabilityProject (Profit in GBP 000)International ExpansionExpected profitabilityDomestic ExpansionExpected profitabilityNo changeExpected profitabilityPessimistic 25%3750937.54300107555001375Average 55%690037957000385061503382.5Optimisti20%1095021909750195083501670
c 6922.568756427.5Working note: Expected profitability under different market scenarios ¿Profitability∗ProbabilityTotal expected profitability under different alternatives: 1.International Expansion: (£3,750*0.25) + (£6,900*0.55) + (£10,950*20%) = £6,922.5 2.Domestic Expansion: (£4,300*0.25) + (£7,000*0.55) + (£1,950*20%) = £6,8753.No Change: (£5,500*0.25) + (£6,150*0.55) + (£8,350*20%) = £6,427.5 B. Recommendation to Dreamcatcher with arguments There are three alternatives available to the Dreamcatcher that is either to expandbusiness globally or domestically or do not expand. In every alternative, there is a possibility ofthree different market scenarios, pessimistic, optimistic and average with having differentprobability of 25%, 20% and 55% respectively. Considering the outcome of the analysis, it isseen that in the alternative of international expansion, total expected profitability is greater thanthe other alternative options. In the global expansion project, Dreamcatcher is expected to gettotal return of £6,922.5 whereas if it expands business domestically then the return is £6,875 andif it does not make any change then the profit is just £6427.5. The main reason behind this is by expanding the operations of a business globally meanson a large scale, Dreamcatcher would be able to generate a greater number of customers and canserve more people. As a result, it will significantly contribute towards maximizing its total sales.Moreover, through delivering its game services to maximum number of buyers, it can get scale-based benefits that will helps to minimize cost each unit and attract high return. However,domestic expansion attract less number of buyers hence, although sales will be maximize but to aless extent than international expansion (Howell, 2016). In despite of this, if neither it expandsglobally nor domestically then un-doubtedly, the total expected profitability will becomparatively less than other two options. As per the results, although in pessimistic and averagemarket scenario, domestic expansion shows greater yield, still, high profit prediction in
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