lOMoARcPSD|9230700

Assigned: Friday, February 23, 2018 HW 3 (30 Points) Due: Sunday, March 4, 2018
11:59 PM

Instructions: Download “HW3.xlsx” Excel file. You need to type your final answers and
discussions for the following questions in the appropriate cells provided in the “AnswerSheet”
worksheet. You need to show your work for Questions 6, 8, 11, and 12 in the designated sheets.

To submit, upload your completed Excel file on Blackboard by clicking on “HW3” link under the
“Assignments” tab.

1. The following table contains the demand from the last 5 months.

Month Actual Demand

1 31

2 34

3 33

4 35

5 37

a. Calculate the single exponential smoothing forecast for these data using an α of 0.30 and an
initial forecast (F1) of 31. Report the forecast for Month 6 in AnswerSheet. (2 pts.)

b. Calculate the exponential smoothing with trend forecast for these data using an α of 0.30, a β
of 0.30, an initial trend forecast (T1) of 1, and an initial exponentially smoothed forecast (F1)
of 30. Report the forecast including trend for Month 6 in AnswerSheet. (2 pts.)

c. Calculate the mean absolute deviation (MAD) for each forecast. Which forecasting method
performs better in this problem (pick from the list)? (3 pts.)

Exponential Absolute
Month Demand smoothing deviation Tt Ft FITt Absolute deviation
1 31 31.00 0 1.00 30.00 31.00 0
2 34 31.00 3.00 1.00 31.00 32.00 2.00
3 33 31.90 1.10 1.18 32.60 33.78 0.78
4 35 32.23 2.77 1.11 33.55 34.66 0.34
5 37 33.06 3.94 1.14 34.76 35.90 1.10
6 34.24 1.24 36.23 37.47
MAD 10.81/5=2.16 4.22/5=0.84
 lOMoARcPSD|9230700

Assigned: Friday, February 23, 2018 HW 3 (30 Points) Due: Sunday, March 4, 2018
11:59 PM

Based upon the MAD of each forecast, the exponential smoothing with trend is the better
forecasting model.

2. Historical demand for a product is

Demand

January 12

February 11

March 15

April 12

May 16

June 15

a. Using a weighted moving average with weights of 0.60 (for June), 0.30 (for May), and 0.10
(for April), find the July forecast. (2 pts.)
b. Using a simple three-month moving average, find the July forecast. (2 pts.)

a. FJuly = .60(15) + .30(16) + .10(12) = 15.0

b. FJuly = (15 + 16 + 12) / 3 = 14.3

3. A builder has located a piece of property that she would like to buy and eventually build on. The
land is currently zoned for four homes per acre, but she is planning to request new zoning. What
she builds depends on the approval of zoning requests and your analysis of this problem to advise
her. With her input and your help, the decision process has been reduced to the following costs,
alternatives, and probabilities:

Cost of land: $2 million.

Probability of rezoning: 0.60.

If the land is rezoned, there will be additional costs for new roads, lighting, and so on, of $1
million.
 lOMoARcPSD|9230700

Assigned: Friday, February 23, 2018 HW 3 (30 Points) Due: Sunday, March 4, 2018
11:59 PM

If the land is rezoned, the contractor must decide whether to build a shopping center or 1,500
apartments that the tentative plan shows would be possible. If she builds a shopping center, there
is a 70 percent chance that she can sell the shopping center to a large department chain for $4
million over her construction cost, which excludes the land; and there is a 30 percent chance that
she can sell it an insurance company for $5 million over her construction cost (also excluding the
land). If, instead of the shopping center, she decides to build the 1,500 apartments, she places
probabilities on the profits as follows: There is a 60 percent chance that she can sell the
apartments to a real estate investment corporation for 3,000 each over her construction cost; there
is a 40% chance that she get only $2,000 each over her construction cost. (Both exclude the land
cost.)

If the land is not rezoned, she will comply with the existing zoning restrictions and simply build
600 homes, on which she expects to make $4,000 over the construction cost on each one
(excluding the cost of land).

The decision tree for this question is given below. Report the expected values for nodes 1, 2, 3, 4,
and 5, and explain the best decision in the cells provided in the AnswerSheet. Report the expected
values in millions dollars.

Do Nothing
EV = $0
Sell to dept. chain @ $4 million -
P = .70 Costs after rezoning @ $1 million -
Cost of land @ $2 million = $1 million

EV = max{$0 , $0.94} = 1 EV = 0.7 * $1 + 0.3 * $2 = $1.3 million

$0.94 million 5 Build shopping
Sell to insurance co. @ $5 million -
center P = .30
Costs after rezoning @ $1 million -
Buy/Develop Rezoned Cost of land @ $2 million = $2 million
3 EV = max{$1.3 , $0.9} = $1.3 million
Property P = .60
1,500 apts. @ $3,000 = $4.5 million -
4 Build apartments High price Costs after rezoning @ $1.0 million -
P = .60 Cost of land @ $2 million = $1.5 million
EV = 0.6 * $1.3 + 0.4 * $0.4 = $0.94 million
2 EV = 0.6 * $1.5 + 0.4 * $0 = $0.9
million
1,500 apts. @ $2,000 = $3.0 million -
Low price Costs after rezoning @ $1.0 million -
P = .40 Cost of land @ $2 million = 0
Not Rezoned
P = 0.4
P = .40

Build 600 homes @ $4,000 = $2.4 million -

Cost of land @ $2 million = $0.4 million

Decision: Buy/develop property and if rezoning happened build shopping center. The expected
value of this strategy would be $0.94 million.
 lOMoARcPSD|9230700

Assigned: Friday, February 23, 2018 HW 3 (30 Points) Due: Sunday, March 4, 2018
11:59 PM

4. A manufacturing firm has discontinued production of a certain unprofitable product line.

Considerable excess production capacity was created as a result. Management is considering
devoting this excess capacity to one or more of three products: X1, X2, and X3.

Machine hours required per unit are

The available time in machine hours per week is

Unit profits for the three products are $20 (for X1), $6 (for X2), and $8 (for X3).

a) Write the mathematical formulation to maximize the profit per week (Decision variables: Production
amount of X1, X2, and X3) (4 pts.)
b) Solve the mathematical formulation using Excel Solver. Show your work in Sheet “Problem 4b.” (4
pts.)
c) What is the optimal solution? (3 pts.)

a. Maximize Z = 20X1 + 6X2 + 8X3

s.t. 8X1 + 2X2 + 3X3 < 800

4X1 + 3X2 < 480

2X1 + X3 < 320

X1 , X2 , X3 > 0

b. Excel solution (check the Excel file)

 lOMoARcPSD|9230700

Assigned: Friday, February 23, 2018 HW 3 (30 Points) Due: Sunday, March 4, 2018
11:59 PM

c. Solution is X1 = 0
X2 = 160
X3 = 160