MIT WPU School of Management (PG)

QUANTITATIVE TECHNIQUES FOR DECISION MAKING

Cases

Case-1:
Visit the official website of Bombay Stock Exchange www.bseindia.com
Choose the stock of any company of your choice.
Obtain the daily Close price for the period (01st May 2021 to 31st Aug 2021).

Using MS Excel, plot a Line graph to perform Time line analysis for the Opening Stock Value
with Closing Stock Value of the same company over the said period.
Draw trend line. Interpret your results.

Choose stock of another company from the same industry (E.g.: If you have chosen the first
company as Bank of India, you may choose the second company as any other bank like Bank of
Baroda).

Obtain Descriptive statistics for the daily closing stock values of this 4-month period of these
two chosen companies. Interpret the result.

Compare the Coefficient of variation for the Closing Price of the two companies and interpret
stock of which of the two companies is more stable in the given period.

(You are required to submit the soft copy (Excel file) of the close price values, line graph,
Descriptive statistics, CV calculation and the interpretation).
Case 2: Risk and Return
According to the Capital Asset Pricing Model (CAPM) the risk associated with a capital asset is
proportional to the slope b obtained by regressing the asset‘s past returns with the corresponding
returns of the average portfolio called the market portfolio . (The return of the market portfolio
represents the return earned by the average investor. It is weighted average of the returns from all
the assets in the market.) The larger the slope b of an asset, the larger is the risk associated with
that asset. A slope b of 1 represents average risk.
The Returns from an electronic Firm’s stock and the corresponding returns from the market
portfolio for the past 15 years are given below.
Market Return (%) Stocks Return (%)
16.02 21.05
12.17 17.25
11.48 13.1
17.62 18.23
20.01 21.52
14 13.26
13.22 15.84
17.79 22.18
15.46 16.26
8.09 5.64
11 10.55
18.52 17.86
14.05 12.75
8.79 9.13
11.6 13.87

1. Carry out the correlation and regression analysis.

2. Does the value of the slope b indicate that the stock has above-average risk? (For the
purposes of this case assume that the risk is average if the slope is in the range 1 ± 0.1,
below average if it is less than 0.9, and above average if it is more than 1.1.)

Case 3: Acceptable Pins

A company supplies pins in bulk to a customer. The company uses an automatic lathe machine
to produce the pins. Due to many causes-vibrations, temperature, wear and tear, and the like-the
lengths of the pins made by the machine are normally distributed with a mean of 1.012 inches
and a standard deviation of 0.018 inch. The customer will buy only those pins with lengths in the
interval 1.00 ± 0.02 inch. In other words, the customer wants the length to be 1.00 inch but will
accept up to 0.02 inch deviation on either side. This 0.02 inch is known as the tolerance.

1. What percentage of the pins will be acceptable to the consumer?

In order to improve percentage accepted, the production manager and the engineers discuss
adjusting the population mean and standard deviation of the length of the pins.

2. If the lathe can be adjusted to have the mean of the lengths to any desired value, what
should it be adjusted to? Why?

3. Suppose the mean cannot be adjusted, but the standard deviation can be reduced. What
maximum value of the standard deviation would make 90% of the parts acceptable to the
consumer? (Assume the mean to be 1.012.)

4. In practice, which one do you think is easier to adjust, the mean or the standard
deviation? Why?

Case 4: Eli Lily Pharma

Eli Lily Pharmaceuticals produces a drug Rozac from 4 chemicals. Every day it must produce
1000 kg of Rozac. The three active ingredients in Rozac are A, B and C. By weight, the drug
must contain at least 8% of A, at least 4% of B and at least 2% of C.
The cost per kg of each chemical and the amount of each active ingredient per kg of each
chemical are given in the following table:

Chemical Cost (Rs./kg) A B C

I 80 0.03 0.02 0.01

II 100 0.06 0.04 0.01

III 110 0.10 0.03 0.04
IV 140 0.12 0.09 0.04

It is necessary that at least 100 kg of Chemical-II should be used.

Formulate the Linear Programming Problem and solve to minimize the cost of producing Rozac.
Case 5: Shipping Wood to Market

Alabama Atlantic is a lumber company that has three sources of wood and five markets to
be supplied. The annual availability of wood at sources S1, S2 and S3 is 15, 20, and 15
million board feet, respectively. The quantity that can be sold annually at markets M1, M2,
M3, M4, and M5 is 11, 12, 9, 10, and 8 million board feet, respectively. .
In the past the company has shipped the wood by train. However, because shipping
costs have been increasing, the alternative of using ships to make some of the deliveries is
being investigated. This alternative would require the company to invest in some ships.
Except for these investment costs, the shipping costs in thousands of dollars per million
board feet by rail and by water (when feasible) would be the following for each route:

Unit Cost by Ship ($1,000’s)

Unit Cost by Rail ($1,000's)
Source Market
Market

M1 M2 M5 M4 M5 M1 M2 M3 M4 M5

3
S1 61 72 45 55 66 38 24 --- 35
1
3
S2 69 78 60 49 56 43 28 24 31
6

S3 59 66 63 61 47 --- 33 36 32 26

The capital investment (in thousands of dollars) in ships required for each million
board feet to be transported annually by ship along each route is given as follows:

Investment for Ships ($1,000’s)

Market
Source M1 M2 M3 M4 M5
S1 275 303 238 — 285
S2 293 318 270 250 265
S3 — 283 275 268 240

Considering the expected useful life of the ships and the time value of money, the
equivalent uniform annual cost of these investments is one-tenth the amount given in the
table. The objective is to determine the overall shipping plan that minimizes the to tal
equivalent uniform annual cost (including shipping costs).
You are the head of the OR team that has been assigned the task of determining this
shipping plan for each of the following three options.
Option 1: Continue shipping exclusively by rail.
Option 2: Switch to shipping exclusively by water (except where only rail is feasible).
Option 3: Ship by either rail or water, depending on which is less expensive for the
particular route.

Present your results for each option Compare.

Finally, consider the fact that these results are based on current shipping and in-
vestment costs, so that the decision on the option to adopt now should take into account
management's projection of how these costs are likely to change in the future. For each
option, describe a scenario of future cost changes that would justify adopting that option
now.