APPROVED

May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 1 of 13






EXAMINATION PAPER: ACADEMIC SESSION 2009/2010

Campus Greenwich Maritime

School Business

Department Systems Management & Strategy

Course Code OPER1025

Course Title Creativity & Decision Making in Business

Level 2

Duration TWO HOURS

Date May 2010


Course co-ordinator: Tom Lawson

INSTRUCTIONS TO CANDIDATES

Answer THREE questions only. You should spend 40 minutes on each question.
All questions are worth 33%. 1% will be awarded to students who identify their
banner ID number correctly on their exam scripts.

This is a CLOSED book examination.

Formulae sheets and Normal and Chi Square Distribution Tables are attached to this
paper. Non-programmable calculators are permitted.






APPROVED
May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 2 of 13

Question One

The management team of a company is aware that sales of its products are no longer
increasing in its existing markets and is considering whether or not to start selling its
products in new markets. They are also aware of various best practice models to
help take decisions on this issue.

a) Using a model of decision making taken from this course, show how the
management team could apply such a model to assist with its decisions in this
specific case. Your answer should include descriptions of the stages, their
sequence and the outputs of each stage of your chosen model. 25 marks

b) What difficulties are the management team likely to encounter in applying the
model during its discussions? How might the team best deal with these
difficulties? 8 marks
Total 33 marks



Question Two

(a) An emergency glazing firm calculates its charges to customers as follows:
(i) call-out charge of 85
PLUS (ii) an hourly rate of 65.
Materials (generally plywood sheets and fixings) are supplied free.

Formulate this information into a Charging Equation, y = a + bx, where y is the
overall charge to the customer and x is the number of hours. Illustrate your
equation with a graph for values of x from 0 up to 6 (hours). 6 marks

(b) Although its charges to customers (in part (a)) are simple enough, what it pays
its operatives is more complicated. The actual cost of call-out is also slightly
variable, depending on time of day, price of petrol, distance covered, what kind
of vehicle is used, etc. In order to estimate its own costs, the firm collects data
on actual monetary cost y versus chargeable time x on the job from 10 recent
call-outs. These data are tabulated in the first three columns of the table at the
top of the next page.

Draw an accurate scatter-diagram of the data and draw the line of best fit by
eye on the scatter diagram. Critically comment on your diagram and what it
tells you about the cost estimation exercise. 6 marks
APPROVED
May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 3 of 13


n x y x
2
y
2
xy
1 3.5 146 12.25 21316 511
2 6 217 36 47089 1302
3 2 123 4 15129 246
4 5.5 232 30.25 53824 1276
5 7 289 49 83521 2023
6 3 135 9 18225 405
7 5 197 25 38809 985
8 1.5 87 2.25 7569 130.5
9 2 99 4 9801 198
10 3 167 9 27889 501
38.5 1692 180.75 323172 7577.5

(c) Calculate the values of a and b in the equation of the Line of Regression,
y = a + bx. You may use the table above to read off the various sums.
Interpret the values of a and b in terms of fixed and variable costs, being as
specific as possible (including units). Also calculate the value of r
2
, the
coefficient of regression, and explain what it means in business terms.
15 marks

(d) By comparing the Charging Equation you formulated in part (a) with the
Regression Equation you calculated in part (b), deduce the Profit Equation for
the firm in terms of hours. What is the value of x for which the firm breaks
even (i.e. charge = actual cost)? Explain your answer. 6 marks
Total 33 marks



APPROVED
May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 4 of 13

Question Three

(a) A proposed project involves an initial investment of 300,000 to buy a
production machine that will generate annual revenues and costs as follows:

Year Revenue (000) Costs (000)
1 200 100
2 300 180
3 400 280
4 500 380
5 200 150

The scrap value of the machine at the end of the project in the 5
th
year is
50,000.

The companys minimum acceptable rate of return on any proposed project using
Discounted Cash Flows is 20%.
Based on the financial information above, should this proposed project be approved or
not? Demonstrate your conclusion by deriving the Net Present Value (NPV) of the
project. 16 marks

(b) A particular brand of light-bulbs is supposed to have a working life of 1000
hours with a standard deviation of 120 hours. Assuming that this brand of
light-bulbs has a working life that is NORMALLY distributed, determine

(i) the percentage of light-bulbs that last more than 1150 hours
(ii) the percentage of light-bulbs that last less than 1150 hours
(iii) the percentage of light-bulbs that last more than 750 hours
(iv) the working life that 95% of the light-bulbs exceed.
17 marks
Total 33 marks


APPROVED
May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 5 of 13

Question Four

You have been analysing the results of a questionnaire among the employees of a
multinational computer manufacturer concerning pay and conditions. The survey
results are based on the replies of 300 selected employees. In doing so, you have
focused on differences in responses between men and women.

(a) You have obtained the following interesting cross-tabulation relating
gender to the answers to the question "What is most the important thing
to me about my work?"

Observed Values:

Men Women Totals
High wages and other financial incentives 76 17 93
High status and recognition 28 42 70
Friendship and support of workmates 29 6 35
Job satisfaction and interest 67 35 102
Totals 200 100 300
Write a brief report on what the findings appear to indicate. 9 marks

(b) What information would you need about the way in which the
questionnaire exercise was planned and implemented in order to report
your findings with any degree of authority? 6 marks

(c) Formally state the null hypothesis and deduce that the "Expected
Values" that follow from the Null Hypothesis are approximately given
by:

Expected Values:

Men Women Totals
High wages and other financial incentives 62 31 93
High status and recognition 46.7 23.3 70
Friendship and support of workmates 23.3 11.7 35
Job satisfaction and interest 68 34 102
Totals 200 100 300
9 marks

(d) By applying the Chi-squared (
2
) test, show, with 95% confidence, that
the cross-tabulation of observations is significantly different from that
of the Null Hypothesis. 9 marks
Total 33 marks




APPROVED
May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 6 of 13

Question Five

Critical Thinking has been described by Bassham (et al*) as disciplined thinking
governed by clear intellectual standards.

a) Describe the intellectual standards required for Critical Thinking and show how
these might be used by the chairman of a board of directors to ensure the board
thinks critically about a major issue it is discussing?
(Examples of the type of major issue you could choose for your illustration
include the proposal to develop a new product line or to expand into new markets
or to take over another company or to close one of its production units).
Choose only one such issue for your illustration. 25 marks

b) In what circumstances might a management team suspend the use of Critical
Thinking as defined above and why? 8 marks
Total 33 marks

* = Bassham, Irwin, Nardone and Wallace: Critical Thinking A students
introduction














APPROVED
May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 7 of 13

Question Six

Analyse the financial performance of ABC plc from 2006 to 2008 from the data
shown below:

Profit and Loss Account for year ended 31 December ( million)
2006 2007 2008
Sales 500 550 560
Cost of Sales -205 -260 -280
Gross Profit 295 290 280
Distribution and Admin Expenses 100 100 110
Operating Profit 195 190 170
Other Costs -55 -55 -55
Profit before Interest and Tax 140 135 115
Net Interest -5 -8 -10
Profit before Tax 135 127 105
Tax -30 -25 -23
Profit after Tax 105 102 82
Dividends -30 -22 -12
Retained Profit 75 80 70

Balance sheet at 31 December

( million)

2006 2007 2008
Fixed Assets 120 120 120
Current Assets
- Stocks 100 115 120
- Debtors 50 55 70
- Cash 30 30 30
Total Current Assets 180 200 220
Current Liabilities 95 100 110
Net Current Assets 85 100 110

Total Assets 300 320 340
- Less Current Liabilities 205 220 230

Long term liabilities
- Long term debt 80 90 100

Net Assets 125 130 130

Capital and Reserves
- Share capital 50 50 60
- Retained profits 75 80 70
Total Equity 125 130 130
Number of issued shares 10 million 10 million 12 million
APPROVED
May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 8 of 13

a) Is ABC plcs financial performance improving or declining in the 3 years from
2006 to 2008? Your answer should include key ratios covering profitability,
liquidity, financing and growth. 25 marks

b) What additional financial information would be useful in further evaluating
ABC plcs overall financial status from 2006 to 2008? 8 marks

Total 33 marks













APPROVED
May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 9 of 13

Financial Ratios



1) Gross margin = Gross profit
Sales as a %

2) Net margin % (or Return on Sales) = Profit after Tax
Sales as a %

3) ROCE = Profit before interest and tax
Total Equity + long term liabilities as a %

4) Return on Shareholders Funds (ROSF)
= Profit after Tax
Total Equity as a %

5) Earnings per share = Profit after Tax
No. of issued shares as pence per share

6) Dividend per share = Total Dividend for year
No. of issued shares as pence per share

7) Current ratio = Current assets
Current liabilities

8) Acid test = Current assets minus stocks
Current liabilities

9) Stock turnover = Year end stock value x 365
Cost of sales as number of times

10) Debtor payment time = Year end debtors x 365
Sales as number of days

11) Creditor payment time = Year end short term creditors x 365
Cost of sales
as number of days

12) Gearing ratio = Long term debt
Equity + long term debt as a %

APPROVED
May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 10 of 13

Formulae Sheet


Mean:

Ungrouped Data:
n
x
x

= n is the number of items

Grouped Data:

=
f
fx
x f is the frequency

Standard Deviation:

Ungrouped Data:
2
2 2
) (
) (
x
n
x
n
x x
SD =

=



Grouped Data:
2
2
(
(

f
fx
f
fx
SD

Coefficient of Variation:
MEAN
SD
ON TofVARIATI COEFFICIEN = as a %


Discount Factor for DCF :

Present value of P ( or P
0
)

which has a value of P
N

in N years is


P
0
= P
N

(1+r )
N
where r is the discount rate expressed as percentage



Correlation:




] ) y ( - y ][n ) x ( -
x
[n
y x - xy n
= r
2 2 2
2
E E E E
E E E


APPROVED
May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 11 of 13

Regression:

where

and



Chi Square

( )

=
E
E O
2
2
_

bx + a = y


) x ( -
x
n
y x - xy n
= b
2
2
E E
E E E



n
x b - y
= a
E E

APPROVED
May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 12 of 13

Normal Distribution Tables

The function tabulated is 1 - F(z), where F(z) is the cumulative
distribution function of a standardised Normal variable z. See
diagram


z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0.0 0.5000 0.4960 0.4920 0.4880 0.4840 0.4801 0.4761 0.4721 0.4681 0.4641
0.1 0.4602 0.4562 0.4522 0.4483 0.4443 0.4404 0.4364 0.4325 0.4286 0.4247
0.2 0.4207 0.4168 0.4129 0.4090 0.4052 0.4013 0.3974 0.3936 0.3897 0.3859
0.3 0.3821 0.3783 0.3745 0.3707 0.3669 0.3632 0.3594 0.3557 0.3520 0.3483
0.4 0.3446 0.3409 0.3372 0.3336 0.3300 0.3264 0.3228 0.3192 0.3156 0.3121
0.5 0.3085 0.3050 0.3015 0.2981 0.2946 0.2912 0.2877 0.2843 0.2810 0.2776
0.6 0.2743 0.2709 0.2676 0.2643 0.2611 0.2578 0.2546 0.2514 0.2483 0.2451
0.7 0.2420 0.2389 0.2358 0.2327 0.2296 0.2266 0.2236 0.2206 0.2177 0.2148
0.8 0.2119 0.2090 0.2061 0.2033 0.2005 0.1977 0.1949 0.1922 0.1894 0.1867
0.9 0.1841 0.1814 0.1788 0.1762 0.1736 0.1711 0.1685 0.1660 0.1635 0.1611
1.0 0.1587 0.1562 0.1539 0.1515 0.1492 0.1469 0.1446 0.1423 0.1401 0.1379
1.1 0.1357 0.1335 0.1314 0.1292 0.1271 0.1251 0.1230 0.1210 0.1190 0.1170
1.2 0.1151 0.1131 0.1112 0.1093 0.1075 0.1056 0.1038 0.1020 0.1003 0.0985
1.3 0.0968 0.0951 0.0934 0.0918 0.0901 0.0885 0.0869 0.0853 0.0838 0.0823
1.4 0.0808 0.0793 0.0778 0.0764 0.0749 0.0735 0.0721 0.0708 0.0694 0.0681
1.5 0.0668 0.0655 0.0643 0.0630 0.0618 0.0606 0.0594 0.0582 0.0571 0.0559
1.6 0.0548 0.0537 0.0526 0.0516 0.0505 0.0495 0.0485 0.0475 0.0465 0.0455
1.7 0.0446 0.0436 0.0427 0.0418 0.0409 0.0401 0.0392 0.0384 0.0375 0.0367
1.8 0.0359 0.0351 0.0344 0.0336 0.0329 0.0322 0.0314 0.0307 0.0301 0.0294
1.9 0.0287 0.0281 0.0274 0.0268 0.0262 0.0256 0.0250 0.0244 0.0239 0.0233
2.0 0.0228 0.0222 0.0217 0.0212 0.0207 0.0202 0.0197 0.0192 0.0188 0.0183
2.1 0.0179 0.0174 0.0170 0.0166 0.0162 0.0158 0.0154 0.0150 0.0146 0.0143
2.2 0.0139 0.0136 0.0132 0.0129 0.0125 0.0122 0.0119 0.0116 0.0113 0.0110
2.3 0.0107 0.0104 0.0102 0.0099 0.0096 0.0094 0.0091 0.0089 0.0087 0.0084
2.4 0.0082 0.0080 0.0078 0.0075 0.0073 0.0071 0.0069 0.0068 0.0066 0.0064
2.5 0.0062 0.0060 0.0059 0.0057 0.0055 0.0054 0.0052 0.0051 0.0049 0.0048
2.6 0.0047 0.0045 0.0044 0.0043 0.0041 0.0040 0.0039 0.0038 0.0037 0.0036
2.7 0.0035 0.0034 0.0033 0.0032 0.0031 0.0030 0.0029 0.0028 0.0027 0.0026
2.8 0.0026 0.0025 0.0024 0.0023 0.0023 0.0022 0.0021 0.0021 0.0020 0.0019
2.9 0.0019 0.0018 0.0018 0.0017 0.0016 0.0016 0.0015 0.0015 0.0014 0.0014
3.0 0.00135 0.00131 0.00126 0.00122 0.00118 0.00114 0.00111 0.00107 0.00104 0.00100
3.1 0.00097
3.2 0.00069




z
APPROVED
May 2010
Course Title Creativity & Decision Making in Business
Course Code OPER1025
Page 13 of 13

Critical values of the Chi Squared Distribution



Level of Significance

Significance 5% 2.5% 1% 0.5%
(Parameter) 0.05 0.025 0.01 0.005


1 3.841 5.024 6.635 7.879
2 5.991 7.378 9.210 10.597
Degree 3 7.815 9.348 11.345 12.838
of 4 9.488 11.143 13.277 14.860
Freedom 5 11.070 12.833 15.086 16.750
6 12.592 14.449 16.812 18.548
7 14.067 16.013 18.475 20.278
8 15.507 17.535 20.090 21.955
9 16.919 19.023 21.666 23.589
10 18.307 20.483 23.209 25.188
11 19.675 21.920 24.725 26.757
12 21.026 23.337 26.217 28.300
13 22.362 24.736 27.688 29.819
14 23.685 26.119 29.141 31.319
15 24.996 27.488 30.578 32.801
16 26.296 28.845 32.000 34.267
17 27.587 30.191 33.409 35.718
18 28.869 31.526 34.805 37.156
19 30.144 32.852 36.191 38.582
20 31.410 34.170 37.566 39.997
21 32.671 35.479 38.932 41.401
22 33.924 36.781 40.289 42.796
23 35.172 38.076 41.638 44.181
24 36.415 39.364 42.980 45.559
25 37.652 40.646 44.314 46.928
26 38.885 41.923 45.642 48.290
27 40.113 43.195 46.963 49.645
28 41.337 44.461 48.278 50.993
29 42.557 45.722 49.588 52.336
30 43.773 46.979 50.892 53.672