Strategic Staffing (HRM3008) – Ms.

Lena Davis
Tutorial Activity#1 (Individual Work)

Tutorial Activity #1 – Introduction to Strategic Staffing – (September 8, 2025)

Use citation, formatting and referencing according to APA format 7th edition

1. Explain the difference between a process and an outcome goal in staffing. Give four (4)
examples of each in your answer.

2. According to Phillips and Gully (2015), “effective staffing is the cornerstone of successful
human resource management. Justify three (3) arguments if you agree or disagree with them.

3. Cite three ways in which strategic staffing differs from traditional staffing.

4. Outline using examples the components of Strategic Staffing.

5. If your CEO asked you why he/she should invest more money in the organization’s staffing
systems, what would you tell him/her?

Group 4
Sherry-Kay Perry
Asheka Campbell
Asheena Mitchell
Tamoyah Cherrington
1. What is Atlas doing well with regard to staffing strategically?

With regards to strategic staffing, Atlas is doing several things well which includes
business strategy alignment, structured selection and the utilization of multiple
channels for recruitment.

As it relates to Alignment with business strategy, Atlas Corporation understands that

their growth strategy depends on promoting from within and therefore seek applicants
that can do their job and also have management skills.

Atlas uses several screening stages which includes portfolio review, background
check and both phone and face to face interviews, these aid in improved hiring
qualities.

Atlas uses multiple recruitment channels, including social media platforms such as
Twitter and [Link], which helps maximize applicant reach and attract a large
pool of candidates.

2. How could Atlas staff its graphic designer positions more strategically?
Instead of focusing on attracting a high volume of applicants, Atlas could focus more
on the quality of the applicants and their work. So instead of using Twitter and
Monster,com
Atlas could use platforms more specific to graphic design such as an online designer
hiring platform such as Coroflot, to attract applicants who already possess the relevant
design skills and experience. This will result in fewer and more suitable applications
and reduce screening time.

Atlas could also develop internships for graphic designers, allowing Atlas to identify
and train high-potential candidates before positions become vacant. This would
reduce hiring time and ensure a steady supply of qualified designers aligned with
company needs.

3. What would you suggest Atlas do to further enhance the alignment between
its staffing function and its need to promote from within?

In order to better align staffing with the strategy of promoting from within, Atlas
should focus on the talents of the employees.

By focusing on the internal talents, this helps to identify high potential employees and
provide training, development programmes and mentoring therefore preparing them
for leadership roles in the company
 PERFORMANCE MANAGEMENT

TUTORIAL SHEET 1

1. How would you define the concept of performance management to someone

who had never heard the term before?

Performance management is an ongoing process used by organizations to plan,

monitor, evaluate and improve employee’s performance to achieve the organizational
goals effectively (Aguinis, 2014)

Performance management is a continuous process of identifying, measuring, and

developing the performance of individuals and teams and aligning performance with
the strategic goals of the organization.

2. Discuss three (3) benefits of performance management to:

a. The employee – Increase Self Esteem, Increase Motivation to perform & Enhance
Self-Insight and Development.

b. The manager/supervisor – Managers gain insight about subordinates, Better and

more timely differentiation between good and poor performers and Employees
become more competent.

c. The organization/the Human Resource Manager – Clarify organizational goals,

Facilitate organizational change, Fairer, more appropriate administrative actions and
Better protection from lawsuits (Aguinis, 2014)

3. In your own words, explain the six(6) purposes of the performance

management system and explain how each purpose is reflected in the
performance management process.

1. Strategic - The first purpose of performance management systems is to help top

management achieve strategic business objectives.
 Link individual goals with organization’s goals
 Communicate most crucial business strategic initiatives

2. Administrative - furnish valid and useful information for making administrative

decisions about employees. Such administrative decisions include salary adjustments,
promotions, employee retention or termination, recognition of superior individual
performance, identification of poor performers, layoffs, and merit increases.
Therefore, the implementation of reward systems based on information provided by
the performance management system falls within the administrative purpose
 Provide information for making decisions re:
 Salary adjustments
 Promotions
 Retention or termination
 Recognition of individual performance
 Layoffs

3. Informational - Performance management systems serve as an important

communication device. First, they inform employees about how they are doing and
provide them with information on specific areas that may need improvement. Second,
related to the strategic purpose, they provide information regarding the
organization’s and the supervisor’s expectations and what aspects of work the
supervisor believes are most important.
 Communicate to Employees:
 Expectations
 What is important
 How they are doing
 How to improve

4. Developmental - feedback is an important component of a well-implemented

performance management system. This feedback can be used in a developmental
manner. Managers can use feedback to coach employees and improve performance
on an ongoing basis. This feedback allows for the identification of strengths and
weaknesses as well as the causes for performance deficiencies (which could be due to
individual, group, or contextual factors).
 Performance feedback/coaching
 Identification of individual strengths and weaknesses
 Causes of performance deficiencies
 Tailor development of individual career path

5. Organizational maintenance - provide information to be used in workforce

planning. Workforce planning comprises a set of systems that allows organizations to
anticipate and respond to needs emerging within and outside the organization, to
determine priorities, and to allocate human resources where they can do the most
good.
 Plan effective workforce
 Assess future training needs
 Evaluate performance at organizational level
 Evaluate effectiveness of HR interventions

6. Documentational - performance management systems allow organizations to

collect useful information that can be used for several documentation purposes. First,
performance data can be used to validate newly proposed selection instruments.
 Validate selection instruments
 Document administrative decisions
 Help meet legal requirements
4. For each below, write a sentence re how they are connected to Performance
Management.
 Performance: Performance management ensures employees’ contributions
are evaluated and aligned with organizational objectives.
 Self-Esteem: Fair and constructive feedback in performance management can
boost employees’ self-esteem and confidence.
 Measure: Performance management relies on measurable criteria to assess
employee effectiveness.
 Lawsuits: Poorly designed performance management systems can lead to
lawsuits over unfair treatment or discrimination.
 Competence: Performance management identifies and develops employee
competence to meet organizational needs.
 Developmental: A developmental focus in performance management helps
employees grow through training and feedback.
 High Performers Alignment: Performance management aligns high
performers with strategic goals to maximize organizational success.
 Thoroughness: Thorough performance evaluations ensure accuracy and
fairness in employee assessments.
 Change: Performance management supports organizational change by guiding
employees toward new expectations.
 Meaningfulness: Meaningful feedback in performance management increases
employee engagement and motivation.
 Goals: Performance management sets clear goals to direct employee efforts
and measure success.
 Specificity: Specific performance criteria reduce ambiguity and improve
fairness in evaluations.
 Motivation: Performance management motivates employees through
recognition, rewards, and constructive feedback.
 Correctability: Systems with correctability allow employees to challenge or
appeal unfair evaluations.
 Ethicality: Ethical performance management ensures fairness, transparency,
and respect in evaluations.
 Commitment: Effective performance management fosters employee
commitment to organizational objectives.
 Turnover: Poor performance management can increase turnover, while fair
systems improve retention.
 Documentational Waste: Inefficient performance management processes can
lead to unnecessary documentational waste.
 Informational: Performance management provides informational feedback
that guides employee improvement.
 Relationships: Strong manager-employee relationships enhance the
effectiveness of performance management.
  Purpose: Performance management clarifies the purpose of employee roles
within the organization.
 Burnout: Poorly managed performance expectations can contribute to
employee burnout.
 Strategic: Performance management serves a strategic purpose by aligning
workforce efforts with organizational vision.
 Standards: Performance management establishes standards against which
employee contributions are judged.
 Administrative: Performance management fulfills administrative functions
such as promotions, pay decisions, and documentation.
 Ratings: Ratings in performance management quantify employee
contributions for comparison and decision-making.
 Strategic Goals: Performance management links individual performance to
the achievement of strategic goals.
 Informational: Informational aspects of performance management provide
employees with clarity on expectations and progress.
 Integration: Performance management integrates employee performance with
organizational strategy and culture.

True/False Questions

1.1 A performance management system is the systematic description of an

employee’s strengths and weaknesses
False – A performance management system is broader; it is not just a description of
strengths and weaknesses but a continuous process of planning, monitoring, and
reviewing performance.

1.2 Linking each individual’s performance to the organization’s mission involves

explaining to each employee how the employee’s activities are helping the
organization gain a competitive advantage.
True – Linking performance to mission involves showing employees how their work
contributes to competitive advantage.

1.3 Dangers of a poorly implemented performance management system include

wasted time and money, lack of standardized employee ratings, and confusion on
how ratings are obtained.
True – Poorly implemented systems can waste resources, create inconsistent ratings,
and cause confusion.

1.4 The strategic purpose of PM systems involves constructing the strategic

vision for the organization.

False – The strategic purpose of performance management is to align employee

performance with the organization’s vision, not to construct the vision itself.

1.5 A reliable performance management system includes all relevant

performance facets and does not include irrelevant performance facets.
True – Reliability requires inclusion of all relevant facets and exclusion of irrelevant
ones.

1.6 Distributive justice is the perception that the performance evaluation

received is fair relative to the work performed
True – Distributive justice refers to fairness in the outcomes of performance
evaluations relative to effort and results.

Tutorial 2 - Crossword Puzzle

ACROSS
1. The first stage in the Performance Management process - Prerequisites-: (1)
prerequisites, (2) performance planning, (3) performance execution, (4) performance
assessment, (5) performance review, and (6) performance renewal and recontracting.
4. Acronym of what required of employees - KSA -(Knowledge, Skills, Abilities)
7. A formal group or cluster of tasks- Job
8. A key requirement of the Performance Management process
11. The outcome of work done - RESULTS
12. What is required to get the work done
14. Yardstick - STANDARD
16. Used in the job evaluation process - ATTRIBUTES
17. Critical to the Performance Review - FEEDBACK
18. Intended direction - GOALS
19. A person who must be involved in implementing and managing the PMS
20. To fix the value or worth of

DOWN
2. Re-engaging the employees -
3. The capability to perform a task accurately -ABILITY
5. A part of the communication model -RECEIVER
6. On way of collecting information -QUESTI0NAIRE
9. Required for persons to execute their work -
10. The measurable cluster of what required of employees -
13. A requirement from everyone -
15. Defines what the company does-

Chapter 2 In-class Group Discussion and Presentation.

Performance Management at the University of Ghana

The University of Ghana in Legon, Ghana, was established in 1948 as an affiliate

college of the University of London called University College of the Gold Coast. In
1961, the university was reorganized by an act of Parliament into what it is today: the
independent, degree-granting University of Ghana (http:// [Link]/).

The Balme Library is the main library in the University of Ghana library system.
Situated on the main Legon campus, it coordinates a large number of libraries
attached to the university’s various schools, institutes, faculties, departments, and
halls of residence, most of which are autonomous. The library was started as the
College Library in 1948 and was then situated in Achimota College, which was about
8 kilometers from the present Legon campus. In 1959, the College Library moved into
its brand-new buildings at the Legon campus and was named after the University C
As in the case of many other modern university libraries worldwide that face
resources challenges and the need to serve an increasingly diverse customer base, the
Balme Library has implemented numerous initiatives. One such initiative is a
performance management system. However, several of the components of the
performance management process at the Balme Library are in need of improvement.
First, there is no evidence that a systematic job analysis was conducted for any of the
jobs at the library. Second, the forms that the employees are rated on contain vague
items such as “general behavior.” The forms include no specific definition of what
“general behavior” is or examples explaining to employees (or managers)
what would lead to a high or a low rating in this category. In addition, all library
employees are rated on the same form, regardless of their job responsibilities. Third,
there is no evidence that managers have worked with employees in setting mutually
agreed-upon goals. Fourth, there is no formal or informal discussion of results and
needed follow-up steps after the subordinates and managers complete their form. Not
surprisingly, an employee survey revealed that more than 60% of the employees have
never discussed their performance with their managers. Finally, employees are often
rated by different people. For example, sometimes the head of the library ratesan
employee, even though he may not be in direct contact with that employee.

Based on the above description, please answer the following questions.

1. Please identify all components in the performance management process at the

Balme Library that have not been implemented effectively (there are several).
· Prerequisites (Job Analysis)
Definition: This stage involves two main tasks: (1) Knowledge of the organization's
mission and strategic goals, and (2) Knowledge of the job in question. The latter is
achieved through job analysis, which identifies the tasks (duties) and KSAs
(knowledge, skills, and abilities) required.
There is no evidence of systematic job analysis. Without this, the library doesn't have
clear descriptions of the Knowledge, Skills, and Abilities (KSAs) required for each
role.
· Performance Planning (Goal Setting):
Definition: A meeting between the supervisor and the employee to reach an
agreement on what needs to be done and how. It includes discussing Results
(accountabilities and objectives), Behaviors (competencies), and a Development Plan.
Managers are not working with employees to set mutually agreed-upon goals.
· Performance Execution:
Definition: The stage where the employee produces the results and displays the
behaviors agreed upon. The employee has primary responsibility for performance,
while the supervisor provides resources and ongoing feedback.
Evidence of Failure: Because the metrics are "vague items such as ‘general behavior’"
with "no specific definition,"
employees cannot effectively execute their roles because they do not know what
specific behaviors to follow during the performance cycle.
· Performance Assessment (Measurement):
Definition: Both the employee and the supervisor fill out evaluation forms to judge
the extent to which the desired behaviors and results have been achieved. It must be
objective and based on specific accountabilities.
Evidence of Failure: "All library employees are rated on the same form, regardless of
their job responsibilities," and ratings are often done by a Head of Library who may
"not be in direct contact with that employee."
 Lack of Specificity: The forms use vague traits rather than specific behaviors or
results.
 Lack of Differentiation: A "one-size-fits-all" form is used for all employees
regardless of their specific duties.
 Inappropriate Raters: Employees are rated by people (like the Head of Library)
who do not have direct contact with their daily work.

· Performance Review (Feedback):

Definition: A formal meeting where the supervisor and employee review the
assessment. It includes a discussion of the past (results/behaviors) and the future
(developmental goals). Aguinis calls this the "Achilles’ heel" of the process.
Evidence of Failure: "More than 60% of the employees have never discussed their
performance with their managers," and there is "no formal or informal discussion of
results."

2. Describe how the poor implementation of the specific components you have chosen
Have had a negative impact on the flow of the performance management process as a
whole.
The performance management process is a continuous cycle where each component
relies on the one before it. If one step is eliminated or not executed properly then,the
"flow" of the entire system is compromised.
The poor implementation at the Balme Library has caused a total breakdown of this
flow:
 Prerequisites: Without Job Analysis, there is no foundation. The "flow" starts
with a wrong turn because the system doesn't know what it is measuring. This
leads to measurement deficiency (missing important parts of the job).
 Performance Planning: Since there is no Goal Setting, the flow lacks direction.
Employees may perform well on tasks that don't actually help the library meet its
strategic challenges.
 Performance Execution: Because expectations are "vague," the flow of work is
hampered. Employees spend energy trying to figure out what "general behavior"
means rather than focusing on specific Accountabilities.
 Performance Assessment: When a "distanced" manager (like the Head of
Library) fills out a "one-size-fits-all" form, the flow of information becomes
contaminated. The data collected is inaccurate and does not reflect actual
performance.
 Performance Review: This is the most critical break. If 60% of employees never
have a Feedback discussion, the flow of communication is blocked. Performance
issues are never corrected, and successes are never reinforced.
 Renewal and Recontracting: Because there is no "follow-up," the cycle cannot
restart. The flow hits a wall, and the next year’s "planning" is just a repeat of the
previous year's mistakes.
·
2. Discuss what should be done to improve the implementation of the components
you have chosen in question 1.

· Prerequisites: Conduct a Job Analysis to identify the specific tasks and KSAs for
each [Link] the system is "strategically congruent" with the library's mission.
· Performance Planning: Mandate a meeting to set SMART Goals (Results) and
define Competencies (Behaviors). Ensure both manager and employee agree on the
"yardstick" for success before the work starts.
· Performance Execution: Provide employees with clear Performance Standards.
Give employees the "ownership" of their performance by letting them know exactly
how they are being judged.
· Performance Assessment: Use multiple forms tailored to different job families
and ensure the Immediate Supervisor is the rater. Increase the "reliability" and
"validity" of the performance data.
· Performance Review: Formalize the Feedback Meeting. Managers must be
trained to handle the "Achilles' heel" of PM by discussing results and behaviors
openly. Turn the assessment into a two-way conversation.
· Renewal and Recontracting: Use the review meeting to create a Developmental
Plan. Use the "lessons learned" from the past year to set better goals for the next year,
completing the cycle.

CLASS ACTIVITY – WEEK 3

WORKING IN GROUPS (6)

Each group is to prepare a presentation to respond to the following questions:

Group 1 – Defend the role of strategic planning to support the development of the
PMS.
Group 2 – How does the “gap analysis” as a result of the environment audit inform
organizations to perform better.
GROUP 3 – Support the development of the mission, vision, values, goals, objectives
and strategies to enable the alignment of the PMS.
Group 4 – Justify conducting a job analysis to support the development,
implementation and evaluation of a PMS.
Group 5 – Provide arguments to support the implementation of a PMS.
Group 6 – Justify recommendations for the design of an effective PMS

Tutorial #3

ACTIVITY 1

In your own word answer the following questions.

a. What are the steps in the creation of a successful strategic plan?
b. Define strengths in the context of strategic planning.
c. Define weaknesses in the context of strategic planning.
d. Define leverage in the context of strategic planning.
e. Define constraint in the context of strategic planning.
f. Define vulnerability in the context of strategic planning.
g. Define problem in the context of strategic planning.
h. A good mission statement answers four questions. What are they?
i. An organization’s ___________ is a statement of future aspirations.

ACTIVITY 2
Below are the strategic statements related to the University of Technology,
Jamaica.
THE UNIVERSITY OF TECHNOLOGY, JAMAICA

Philosophy
The university is committed to the total education of the individual as a social being
and seeks to develop the whole person in terms of personal well-being and social and
intellectual competence. It promotes life-long learning, personal development and
service to the community.

Mission
To positively impact Jamaica and the wider Caribbean through high quality learning
opportunities, research and value added solutions to government, industry and
communities.

Vision
In 2025, the University of Technology, Jamaica will:

We are the #1 University in the Caribbean for work-ready leaders, committed to

transforming students and
society through high quality teaching, research and value added services.

GOALS
The University’s mission is achieved through the fulfilment of the following goals:

• To pursue excellence through the Institution's programmes

• and the work of faculty, non-academic staff and students;
• To respond to national and regional human-resource needs;
• To maintain and enhance the role of technical/vocational education; to provide
flexible delivery systems that are able to serve students who follow non-traditional
routes to higher education;
• To ensure gender equity;
• To provide support to students by offering scholarships and providing a system of
organized financial
aid;
• To establish and pursue partnerships and collaborative arrangements with individual
supporters, professional associations, educational institutions, governments and
corporate entities at regional, national and international levels;
• To provide opportunities for communication and information transfer with other
institutions of higher learning;
• To foster and encourage applied product-oriented research as an integral part of staff
responsibility.

CORE VALUES
The core values that will guide the institution have been explicitly stated and it is our
intention that these values will infuse everything we do.

RESPECT
We believe in the dignity and intrinsic worth of all people and endeavour to celebrate
individuals by fostering an appreciation of and respect for each other’s difference.
INTEGRITY
As a university community we value ethical behaviour in all our endeavours, whether
scholarly, cultural or intellectual and expect all conduct to be grounded in integrity,
mutual respect and civility.

EXCELLENCE
We value excellence in our instructional, administrative and managerial pursuits, and
are dedicated to theprovision of academic courses of the highest quality in an
environment that encourages excellence in research and scholarly activity employing
the most effective tools, technologies and facilities for learning.

INNOVATION
Innovation is encouraged inside and outside the classroom. We foster intellectual
inquiry, exploration and discovery that transcend traditional boundaries in an
atmosphere that celebrates creativity.

TEAM SPIRIT
We pledge to work together in a spirit of cooperation to enrich the cultural
environment. We will employ a decision-making style that stresses participation and
consultation amongst administrators, faculty and students.

ACCOUNTABILITY
In the spirit of efficiency and effectiveness, we will embrace ownership of all our
responsibilities and accept the principle that we are accountable for our actions.

SERVICE
We are committed to excellence and high quality service in all interactions with the
immediate and wider community, demonstrating that we see service as being
fundamental to our operations in all areas of university life.

Please respond to the following questions:

1. Explain the philosophy of an organization – Relate the philosophy of the University
to its other critical strategic statements.

2. Identify how many of the eight characteristics of an ideal mission statement are
present in the UTech, Jamaica mission statement– provide examples.

3. Identify how many of the eight characteristics of an ideal vision statement are
present in the UTech, Jamaica mission statement– provide examples.

4. Assess the goals that are articulated – what does each goal mean in relation to the
organization achieving its mission and vision.

5. The Values articulated by the University reflect the behaviours required of its
academic and administrative staff along with its student population. As a student,
explain how each competency prepare you for the world of work on graduation.
 Training and Development Tutorial Sheets

HRM 3007 - Training and Development Topic 1- Introduction to Training and

Development
Discussion Questions
SMALL GROUP ACTIVITY

1. Describe the forces affecting the workplace and learning. How can training help
Jamaican companies deal with these forces? Which of these force’s do you think
most affect Jamaican Companies?

2. Discuss the relationship between formal training and development, informal

learning, and knowledge management. How are they related to learning and
creating a learning organization?

3. What steps are included in the training design model? What step do you think is
most important? Why?

4. What are intangible assets? How do they relate to training and development?
Intangible assets are human, social, and intellectual capital, including:

5. How are companies using training and development to their benefit in today’s
economy?

6. Training professionals continue to debate whether the ISD model is flawed. Some
argue that ISD should be treated as a project management approach rather than a
step-by-step recipe for building training programs. Others suggest that ISD is too
linear and rigid a process—that it is the primary reason training is expensive, and
that it takes too long to develop. ISD focuses on inputs; management wants
outputs. Businesses want results, not the use of a design technology. Do you
believe that ISD is a useful process? Why or why not? Are there certain
situations when it is a more (or less) effective way to design training?

7. In your opinion, which of the training professionals’ roles would be most difficult
to learn? Which would be easiest?
8. How might technology influence the importance of training professionals’ roles?
Can technology reduce the importance of any of the roles? Can it result in
additional roles?

TUTORIAL #2

ACTIVITY 1
The strategic training and development process

Raymond A. Noe states that strategic training and development initiatives are
learning-related actions a company should take to help it achieve its business strategy.
These initiatives vary depending on the company’s industry, goals, resources, and
capabilities.

1.

Label the diagram.

2a. Box # 1 - Identify different types of business strategy and what types of
training interventions would support these strategies

Cost Leadership Strategy

Training interventions:Training focused on efficiency, standard procedures, quality
improvement, and cost reduction.
Purpose:To improve productivity and reduce operating costs.

Differentiation Strategy
Training interventions:Training in creativity, innovation, product knowledge, and
customer service skills.
Purpose:To help employees deliver unique, high-quality products or services.

Growth Strategy
Training interventions:Leadership development, management training, onboarding,
and training to support change.
Purpose:To prepare employees and managers for expansion and new responsibilities.

Focus Strategy
Training interventions:Specialized technical training and customer-focused training.
Purpose:To meet the specific needs of a targeted market or customer group.

- Identify what other factors to be considered besides the business strategy

 The business environment

 The organization’s goals, resources, and capabilities
 Availability of financial resources
 Management support
 People and cultural issues that may inhibit execution
 The success or failure of previous training activities

2b. Box # 2
- Identify and discuss four Strategic Training and Development initiatives
 Diversify the learning portfolio - Includes informal learning,
new job experiences, mentoring, coaching, feedback, and
technology-based learning.
 Expand who is trained - Training is provided not only to
managers but also to employees, suppliers, vendors, and
customers.
 Accelerate the pace of employee learning - Training needs
must be quickly identified and addressed to respond to changes
in technology, customer needs, and global markets.
 Capture and share knowledge - Ensures knowledge about
customers, products, and processes is not lost when employees
leave.

- What factors must be considered when selecting these initiatives

 Alignment with the business strategy
 Availability of financial resources
 Management support
 Organizational culture
 Ability to successfully implement the initiatives·
 2c. Box # 3
- What factors must be considered when designing training activities

training activities must:

 Support strategic training initiatives
 Be aligned with business needs
 Address employee learning needs
 Consider organizational culture
 Be supported by managers and peers

- Identify and discuss four training and development initiatives

 Informal learning through interactions with peers
 Mentoring and coaching
 Web-based and technology-supported training
 Electronic Performance Support Systems (EPSS)

2d. Box #4
- Define “metric” and discuss why this is important in training
A metric is a measure used to determine whether training and development activities
help improve employee capabilities and contribute to the company’s business goals.

Metrics are important because they:

 Show how training adds value
 Determine whether employee knowledge and skills are improving
 Demonstrate alignment between training and business strategy

- Identify and discuss four types of training metrics

 Improvement in employee knowledge
 Improvement in employee skills
 Impact on customer service quality
 Contribution to organizational effectiveness

ACTIVITY 2
DISCUSSION:ORGANIZATIONAL CHARACTERISTICS THAT INFLUENCE
TRAINING ARE:

1. Roles of Employees and Managers

2. Top Management Support
3. Integration of Business Units
4. Global Presence
5. Business Conditions
6. Other HR Practices – Staffing, HR Planning
7. Extent of Unionization
8. Staff Involvement in Training and Development
What do you think is the most important organizational characteristic that influences
training? Why?
Top management support is the most important because leaders control funding,
policies, and priorities. When management values training, employees are more
motivated to learn, and training programs are more likely to succeed.

ACTIVITY 3
There are different types of business strategies. Describe and justify training needs
that would be associated with two (2) business strategies.

1. Cost Leadership Strategy

Training in efficiency, waste reduction, and standard operating procedures.
Justification: Helps reduce costs and improve productivity.

2. Differentiation Strategy
Training in creativity, innovation, and customer service.
Justification: Helps the organization stand out from competitors.

TUTORIAL #3
ACTIVITY 1
TRUE AND FALSE QUESTIONS

1. __F__A TNA is always required when employees in an organization need to be

trained in a specific area such as sexual harassment.
2.__F__If you determine there is a KSA deficiency, then the response is training.
3.__F__The Job-Duty-Task method of job analysis is a worker-oriented approach.
4.__T__Some advantages of using competencies are that they are more general and
tend to be tied to corporate goals.
5.__F__Supervisory ratings are the most effective method to use in a person analysis.
6.__T___Self-ratings are useful tools in determining the needs of an employee.
7. In order to conduct an effective TNA, both the individual and the organization must
value employee development.
8.__F__The only output from a TNA is training needs.
9.__F__The proactive approach to TNA focuses on a specific problem.

ACTIVITY 2

DISCUSSION
List five sources of data for organization; analysis, task analysis and person analysis,
and discuss their training need implications.
 ORGANIZATION ANALYSIS TASK ANALYSIS PERSON ANALYSIS
Organization Goals and Job Description Performance Data or appraisals
budgets Problems Waste, downtime,
waste of materials, cost of
labour, quality, repairs,
customer complaints,
absenteeism and tardiness,
accidents, equipment
utilization, productivity etc.
Labour inventory (availability Job specification Observe job – work sampling
of labour)
Skills inventory (availability of Task Analysis Interviews
skills)
Organizational Climate Performance standards Questionnaires
Labour - Management data – Perform the job Tests – job knowledge, skills,
strikes, lock-outs achievement
Grievances Observe job – work sampling Attitude surveys
Turnover Review literature concerning Checklists or training progress
the job e.g. O*Net charts
Absenteeism Ask questions about the job Rating scales
Suggestions Training Committees or Critical incidents
Conferences
Productivity Analysis of Operaing Problems Diaries
– Waste, downtime, cost of
materials, cost of labour,
quality, repairs
Accidents Devised situations – role plays,
case studies, business games
Shirt-term sickness (medical Assessment Centres
report)
Observation of employee Coaching
behaviour
Attitude surveys MBO or work planning review
systems
Customer complaints
Analysis of Efficiency indices –
Waste, downtime, cost of
material, cost of labour,
quality, repairs
Changes in systems and
subsystems
Management requests
Exit interviews
MBO or work planning review
systems

Operations Strategy
TUTORIAL SHEET 1

1. What is operation strategy, and why is it important.

2. Define and explain operations strategy.

Operations strategy is the total pattern of decisions that shape the long-term
capabilities of any kind of operation and their contribution to overall strategy, through
the ongoing reconciliation of market requirements and operation resources.
● Operations strategy is longer term. Operations management is largely concerned
with short to medium time-scales while operations strategy is concerned with more
long-term issues.
● Operations strategy is concerned with a higher level of analysis. Operations
management is largely concerned with managing resources within and between
smaller operations (departments, work units etc.) whereas operations strategy is more
concerned with decisions affecting a wider set of the organization's resources and the
supply network of which they are a part.
● Operations strategy involves a greater level of aggregation. Operations
management is concerned with the details of how products and services are produced.
Individual sets of resources are treated separately, as the component parts of the
operation. Operations strategy, on the other hand, brings together and consolidates
such details into broader issues.
● Operations strategy uses a higher level of abstraction. Operations management
is concerned largely with what is immediately recognizable and tangible. Operations
strategy often deals with more abstract, less directly observable, issues.

3. State and explain the four perspectives of operations strategy.

1. Operation strategy is a ‘top-down’ reflection of what the whole group or business

wants to do.
2. Operations strategy is a ‘bottom-up’ activity where operations improvements
cumulatively build strategy.
3. Operations strategy involves translating ‘market requirements’ into operations
decisions.
4. Operations strategy involves exploiting the capabilities of ‘operations resources’
in chosen markets.

5. With the use of examples, explain what is meant by the context and process
of operation strategy.

6. Explain what is meant by

a) Operation Strategy Performance Objective
b) Operation Strategy Decision Areas

7. Explain and or state the difference between operations strategy decision

areas and operations resources.
8. Explain and or state the difference between market requirements and
performance objectives.
9. Sketch an operations strategy matrix. Clearly identify all elements of the
matrix
10. General discussion of operations strategy within the context of a local or
international business.
 TUTORIAL SHEET 2

PERFORMANCE OBJECTIVES
1 What are operations performance objectives.
2 Discuss the five generic performance objectives of Quality, speed,
dependability, flexibility, and cost
3 With the use of examples, clearly explain the four types of performance
objectives flexibility.
4 Clearly explain the types of costs.
5 Explain what are order winners and order qualifiers
6 Explain what is meant by the term trade-offs.
7 Explain the concept of focused operations, and with use of examples
explain the six types of focus
8 Discuss the benefits and risks of focused operations.
9 State and explain reasons why companies can drift out of focus.

TUTORIAL SHEET 3
CAPACITY STRATEGY

1 One factor influencing the overall level of capacity speaks to the

uncertainty of future demand:
a) Explain what this means.
b) Discuss how the availability of excess capacity may be used to the
advantage of the firm’s operation.

2 With the use of examples explain how the following factors may influence
the number and size and size of sites of an operation:
a) Economies of scale
b) Supply costs
c) Required service level
d) Geographical distribution of demand

3 State the advantages and disadvantages of pure leading, pure lagging, and
smoothing with inventories strategies of capacity timing.

4 Discuss the factors influencing the location of sites.

SUPPLY CHAIN MANAGEMENT (POM4010)

TUTORIAL SHEET #1

Unit1: Building a Strategic framework to Analyze Supply Chains (Introduction to

Supply Chain Management)

For Discussion
1) Consider the purchase of a can of soda at a convenience store (like Texaco
Star Mart). Describe the various stages in the supply chain and the different
flows involved.

2) Why should the firms that make Dell Computers or Grace Ketchup consider
total supply chain profitability when making decisions?

3) Consider the supply chain involved when a customer purchases a book at

Sangster Bookstore. Identify cycles in this supply chain and the location of the
push/pull boundary.

4) Consider the supply chain involved when a customer orders a book from
Amazon. Identify the push/pull boundary and two processes each in the push
and pull phases.

QUESTIONS

5) A supply chain could be more accurately described as a supply network or supply

web.

6) All stages of an enterprise are involved, either directly or indirectly, in fulfilling a

customer request.

7) A supply chain includes only the organizations directly involved in supplying

components needed for manufacturing.

8)The objective of every supply chain is to maximize the overall value generated.

9) The push/pull view of a supply chain holds that the processes in a supply chain are
divided into 2 categories depending on whether they are initiated in response to or in
anticipation of customer orders.

10) The procurement cycle occurs at the manufacturer/supplier interface.

11. Each stage in a supply chain is connected through the flow of products,
information, and funds. These flows often occur in both directions and are
usually managed by
A) pricing department.
B) one of the stages.
C) upper management.
D) engineering department.

12. A supply chain features a constant flow of

A) information, product and funds.
B) personnel, information, and policies.
C) processes, funds, and product.
D) product, processes, and support.
13)Which set of supply chain flows is correctly described?
A) Funds flow only upstream but information flows both upstream and downstream in
a supply chain.
B) Product flows only downstream and information flows only upstream in a supply
chain.
C) Information and product both flow upstream and downstream in a supply chain.
D) Funds flow both upstream and downstream but product flows only downstream in
a supply chain.

14)Which statement about supply chains is best?

A) New product development is not a supply chain function.
B) If a supplier uses a shipping company to send product to a customer, the shipping
company is technically not a supply chain member.
C) Funds in a supply chain flow upstream only.
D) Flows in a supply chain may be managed by an intermediary.

15)Which sequence of stages is typical for product flow in a supply chain?

A) Supplier → Manufacturer → Distributor
B) Retailer → Distributor → Customer
C) Manufacturer → Retailer → Distributor
D) Supplier → Customer → Retailer

16)Supply chain surplus involves what two parts?

A) Manufacturing cost and selling price
B) Customer value and supply chain cost
C) Customer value and high quality products
D) Reliable transportation and supply chain cost

17) The objective of every supply chain is to

A) minimize the overall cost generated.
B) maximize the overall value generated.
C) minimize the cost to the manufacturer.
D) maximize the profit of the manufacturer.

18)Walmart's supply chain features clusters of stores around distribution

centers, which facilitates
A) high transportation costs.
B) frequent but inexpensive replenishment at the stores.
C) rapid design cycles from their R&D group.
D) sharing of information with suppliers.

19) The profitability of a supply chain is impacted primarily by the

A) design, planning and operation categories of decisions.
B) operation category of decisions.
C) design and planning categories of decisions.
D) planning and operation categories of decisions.

20) Supply chain macro processes include which of the following?

A) Internal Relationship Management (IRM)
B) Customer Relationship Management (CRM)
C) External Relationship Management (ERM)
D) Supply Chain Relationship Management (SCRM)

21)Explain why supply chain flows are important.

22)Describe the cycle view of the processes within a supply chain.

23)Discuss the differences of push and pull supply chain processes.

TUTORIAL WORKSHEET #2a

Demand Forecasting in a Supply Chain

First 30 minutes of Reading

 Working individually, access the website:
 Read over Lecture 2 notes and make jottings on the major points
 Google the main points and make appropriate summary on these points
 Participate in the next 20 minutes of discussion on the topic.

TRUE/FALSE & MULTIPLE CHOICE ITEMS

1. The forecast of demand forms the basis for all strategic and planning decisions
in a supply chain.

2. Throughout the supply chain, all pull processes are performed in anticipation
of customer demand, whereas all push processes are performed in response to
customer demand.

3. For push processes, a manager must forecast what customer demand will be in
order to plan the level of available capacity and inventory.

4. When all stages of a supply chain produce a collaborative forecast, it tends to

be much more accurate.

5. Forecasting and the accompanying managerial decisions are extremely

difficult when either the supply of raw materials or the demand for the
finished product is highly variable.

6. Forecasts should include both the expected value of the forecast and a measure
of forecast error.

7. Long-term forecasts are usually more accurate than short-term forecasts.

8. Qualitative forecasting methods are most appropriate when there is good

historical data available or when experts do not have market intelligence that
is critical in making the forecast.

9. Causal forecasting methods find a correlation between demand and

environmental factors and use estimates of what environmental factors will be
to forecast future demand.
10. The forecast error measures the difference between the forecast and the
estimate.

11. The goal of any forecasting method is to predict the systematic component of
demand and estimate the random component.

12. The moving average forecast method is used when demand has an observable
trend or seasonality.

13. The basis for all strategic and planning decisions in a supply chain comes from
a. the forecast of demand.
b. sales targets.
c. profitability projections.
d. production efficiency goals.
e. all of the above

14. For push processes, a manager must forecast what customer demand will be in
order to
a. plan the service level.
b. plan the level of available capacity and inventory.
c. plan the level of productivity.
d. plan the level of production.
e. none of the above

15. For pull processes, a manager must forecast what customer demand will be in
order to
a. plan the service level.
b. plan the level of available capacity and inventory.
c. plan the level of productivity.
d. plan the level of production.
e. none of the above

16. When all stages of a supply chain produce a collaborative forecast, it tends to
be
a. much more detailed.
b. much more complex.
c. much more accurate.
d. much more flexible.
e. all of the above

17. Production can utilize forecasts to make decisions concerning

a. scheduling.
b. sales-force allocation.
c. promotions.
d. new product introduction.
e. budgetary planning.

18. Finance can utilize forecasts to make decisions concerning

a. scheduling.
 b. promotions.
c. plant/equipment investment.
d. aggregate planning.
e. purchasing.

19. One of the characteristics of forecasts is

a. forecasts are always right.
b. forecasts are always wrong.
c. short-term forecasts are usually less accurate than long-term forecasts.
d. long-term forecasts are usually more accurate than short-term
forecasts.
e. none of the above

20. One of the characteristics of forecasts is

a. aggregate forecasts are usually less accurate than disaggregate forecasts.
b. disaggregate forecasts are usually more accurate than aggregate forecasts.
c. short-term forecasts are usually less accurate than long-term forecasts.
d. long-term forecasts are usually less accurate than short-term forecasts.
e. none of the above

21. Aggregate forecasts are usually more accurate than disaggregate forecasts
because
a. aggregate forecasts tend to have a larger standard deviation of error
relative to the mean.
b. aggregate forecasts tend to have a smaller standard deviation of error
relative to the mean.
c. disaggregate forecasts tend to have a smaller standard deviation of
error relative to the mean.
d. disaggregate forecasts tend to have less standard deviation of error
relative to the mean.
e. none of the above

22. Forecasting methods that are primarily subjective and rely on human judgment
are known as
a. qualitative forecasting methods.
b. time series forecasting methods.
c. causal forecasting methods.
d. simulation forecasting methods.
e. none of the above

23. Forecasting methods that use historical demand to make a forecast are known
as
a. qualitative forecasting methods.
b. time series forecasting methods.
c. causal forecasting methods.
d. simulation forecasting methods.
e. none of the above.

24. Time series forecasting methods are most appropriate when

a. there is little historical data available.
 b. the basic demand pattern varies significantly from one year to the next.
c. the basic demand pattern does not vary significantly from one year to
the next.
d. experts have critical market intelligence.
e. forecasting demand several years into the future.

25. The moving average forecast method is used when

a. demand has observable trend or seasonality.
b. demand has no observable trend or seasonality.
c. demand has observable trend and seasonality.
d. demand has no observable level or seasonality.
e. none of the above

26. The simple exponential smoothing forecast method is appropriate when

a. demand has observable trend or seasonality.
b. demand has no observable trend or seasonality.
c. demand has observable trend and seasonality.
d. demand has no observable level or seasonality.
e. none of the above

27. Managers perform a thorough error analysis on a forecast for which of the
following key reasons?
a. To establish a closely linked systematic forecasting method to accurately
predict the level season component of demand.
b. To determine whether the current forecasting method is accurately
predicting the systematic component of demand.
c. In order to develop contingency plans that account for forecast error.
d. all of the above
e. b and c only

28. The measure of forecast error where the absolute amount of error of each
forecast is averaged is
a. mean squared error (MSE).
b. mean absolute deviation (MAD).
c. mean absolute percentage error (MAPE).
d. bias.
e. the tracking signal.

29. The measure of forecast error where the average absolute error of each
forecast is shown as a percentage of demand is
a. mean squared error (MSE).
b. mean absolute deviation (MAD).
c. mean absolute percentage error (MAPE).
d. bias.
e. the tracking signal.

30. The measure of whether a forecast method consistently over- or

underestimates demand is
a. mean squared error (MSE).
b. mean absolute deviation (MAD).
 c. mean absolute percentage error (MAPE).
d. bias.
e. the tracking signal.

31. The measure of how significantly a forecast method consistently over- or

underestimates demand is
a. mean squared error (MSE).
b. mean absolute deviation (MAD).
c. mean absolute percentage error (MAPE).
d. bias.
e. the tracking signal.

32. Which of the following statements (are) is not true about regression models?

(a) Estimates of the slope are found from sample data.

(b) The regression line minimizes the sum of the squared errors.
(c) The error is found by subtracting the actual data value from the predicted
data value.
(d) The dependent variable is the explanatory variable.
(e) The intercept coefficient is not typically interpreted.

33. If computing a causal linear regression model of Y = a + bX and the resultant

r2 is very near zero, then one would be able to conclude that

(a) Y = a + bX is a good forecasting method.

(b) Y = a + bX is not a good forecasting method.
(c) a multiple linear regression model is a good forecasting method for the
data.
(d) a multiple linear regression model is not a good forecasting method for the
data.
(e) none of the above

34. Which of the following is not classified as a qualitative forecasting model?

(a) exponential smoothing

(b) Delphi
(c) executive opinion
(d) sales force composite
(e) consumer market survey

35. A prediction equation for starting salaries (in $1,000’s) and SAT scores was
performed using simple linear regression. In the regression printout shown below,
what can be said about the level of significance for the overall model?

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.935018123
R Square 0.87425889
Adjusted R Square 0.860287655
Standard Error 3.307295949
Observations 11

ANOVA
df SS MS F Significance F
Regression 1 684.4652324 684.4652 62.57564 2.42144E-05
Residual 9 98.44385847 10.93821
Total 10 782.9090909

Coefficients Standard Error t Stat P-value Lower 95%

Intercept -29.14060468 8.660080997 -3.36493 0.008324 -48.73108387
SAT 0.065443841 0.008273059 7.910476 2.42E-05 0.046728866

(a) SAT is not a good predictor for starting salary.

(b) Overall the model does not provide a good prediction equation.
(c) The significance level for SAT indicates the slope is not equal to zero.
(d) The significance level for SAT indicates the slope is equal to zero.
(a) The significance level for the intercept indicates the model is not valid.

36. Given that the MAD for the following forecast is 2.5, what is the actual value
in period 2?

Period Forecast Actual

1 100 95
2 110
3 120 123
4 130 130

(a) 120
(b) 98
(c) 108
(d) 115
(e) none of the above

37. Enrollment in a particular class for the last four semesters has been 120, 126, 110,
and [Link] best forecast of enrollment next semester, based on a three-semester
moving average, would be

(a) 126.
(b) 135.
(c) 120.
(d) 123.
(e) 125.

38. In the exponential smoothing forecasting method,  is the

(a) slope of the trend line.

 (b) new forecast.
(c) Y-axis intercept.
(d) independent variable.
(e) trend smoothing constant.

39. Demand for a particular type of battery fluctuates from one week to the next.
A study of the last 6 weeks provides the following demands (in
dozens): 4, 5, 3, 6, 7, 8 (last week).

(a) Forecast demand for the next week using a 2-week moving average.
(b) Forecast demand for the next week using a 3-week moving average.

Essay/Problems

1. Explain the role of forecasting in a supply chain.

2. Explain the four types of forecasting methods.

CALCULATIONS

Below is a table showing the demand (in ‘000 of boxes) for Red Stripe Beer.

1) Calculate the 3, 4 and 5 Month Simple Moving Average forecasts

Period Demand 3 Month 4 Month 5 Month

‘000’s of Cases Simple Simple MA Simple MA
of Beers MA
January 8
2011
February 13
March 23
April 34
May 10
June 18
July 23

August 38

September 12

October 13

November 32
December 41

2) Calculate the Exponential Smoothing Forecasts at Alpha = 0.3, 0.45 and

0.65.

Period Demand Ex Smthing Ex Smthing Ex Smthing

‘000’s of Cases Forecast @ a = Forecast @ a Forecast @ a
of Beers 0.3 = 0.45 = 0.65
January 8
2016
February 13

March 23

April 34

May 10

June 18

July 23

August 38
September 12
October 13
November 32
December 41
3) Using the MAD error analysis method, which is the preferred Forecasting
method to forecast the demand for Red Stripe Beer – 3 Month Simple
Moving Average or Exponential Smoothing @ alpha = 0.4 ?

Period Demand 3 Month Ex Smthing

‘000’s of Simple Forecast @ a
Cases of Beers Moving = 0.4
Average
January 8
2011
February 13

March 23

April 34

May 10

June 18

July 23

August 38
September 12
October 13
November 32
December 41
2011
January
2012

4) Use the preferred method to forecast demand for January 2012.

5) Repeat Question 3 using the MSE

6) Repeat Question 3 using the MAPE

7) What are your observations?

 8) Repeat ALL of Question #1 - 7 using Excel (by first copying and pasting
the data into the spreadsheet..

QUESTION 9

Based on the data collected from 30 shops island-wide by the producers of a new
brand of vegetable loaf as at December 2010, the regression analysis was run which
produced the summary output below:

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.952413257
R Square 0.907091012
Adjusted R
Square 0.675425058
Standard Error 1.767131177
Observations 30

ANOVA
Significance
Df SS MS F F
Regression 4 135.9587 33.98968 5.780000 0.000241546
Residual 25 46.84129 3.122753
Total 29 182.8

Standard
Coefficients Error t Stat P-value Lower 95%
Intercept -4,650.0001 2.002465 1.07E-07 20.4256009
X Variable 1 -20.0005248 19.50003 0.002192 -0.1340466
X Variable 2 30.0001546 1.400000 0.671582 -0.2092916
X Variable 3 6.95000038 0.080001 0.009752 -0.12816526
X Variable 4 0.3000075 0.220010 0.237381 -0.02444292

Given:
Q = Quantity sold per month
X1  P(in cents) = Price of the product = 900
X2  Py (in cents) = Price of leading competitor’s product = 850
X3  I (in dollars) = per capita income of the persons in the area in which
the
shops are located = 16,500.
X4  E (in dollars) = Monthly advertising expenditure = 10,000

Using the information above,

a) Develop the linear regression model for the Quantity of Vegetable Loaves
demand per month.

b) What is the quality of the model (estimator) developed?

 c) What is the relationship and the strength of the relationship between
Demand for the Vegetable Loaves and the Independent Variables as a
group?

d) Compute the t-statistics for each variable and state whether it is

statistically
significant at the 5% level.

e) Forecast the Demand for Vegetable Loaves using the model developed in
part a), based on the given information.

QUESTION 10

a) Using the data below, develop a multi-regression model for the demand
for soft drink using excel.

b) What is the quality of the estimator?

c) What Is the relationship and the strength of the relationship between the
dependent and independent variables?

d) Use the model to forecast the demand for soft drinks based on the values
given.

Given the data below, gathered from 20 outlets in Kingston by the producers of a new
Soft drink as at December 2015.

Q P I E B
10 100 14 100 4
12 100 16 95 3
13 90 8 110 2
14 95 7 90 8
9 110 11 100 7
8 125 5 100 9
4 125 12 125 12
3 150 10 150 15
15 80 18 100 8
12 80 12 90 7
13 90 6 80 13
14 100 5 75 10
12 100 12 100 9
10 110 10 125 25
10 125 14 130 39
12 110 15 80 44
11 150 16 90 61
12 100 12 95 63
 10 150 12 100 30
8 150 10 90 40

Given:
Q = Quantity (‘000) sold per month
P(in cents) = Price of the product = 70
I (in dollars) = per capita income of the persons in the area in which the
outlets are located = 6,500.
E (in dollars) = Monthly advertising expenditure = 1,000
B = Number of pizzas sold (per month in the area in which the
outlets are located.= 8,000.

TUTORIAL WORKSHEET #3 & 4 – Aggregate Planning in Supply Chains

Given the following assumptions for the Chase and Level Production method of
calculating the cost of Aggregate Production Planning in Supply Chains:

1. No Overtime
2. No Sub-Contracting
3. Regular Cost of Production = $90/ream
4. Backorder Cost of Production = $15/ream
5. Hiring Cost = $110/ream
6. Production/Employee = 1,200 reams of paper /month
7. Firing Cost = $350 /reams
8. Regular Workforce = 30 workers
9. Overtime Cost of Production = $100 per ream
10. Inventory Carrying/holding cost = $1.50/pair per month
11. Hiring and Firing is allowed.

1. Given the assumptions above, and the data below for the projected Demand for
reams of papers from Johnny’ s Paper Place in Cross Roads, calculate the cost of the
aggregate production plan using:

a. Level Production method, and

b. Chase Method.
c. Which Method provides the better production sequence? Why?

Table showing demand for reams of paper for the 1st Six Months of 2011
 MONTH
Demand for
Reams of Paper
Jan 36000
Feb 33000
Mar 31000
Apr 29000
May 27000
June 25000
July 23000
Sept 20000

TUTORIAL WORKSHEET #6 – Managing Economies of Scale in Supply

Chain: Cycle Inventory.

1. Harley Davidson has its engine assembly plant in Milwaukee and its motorcycle
assembly plant in Pennsylvania. Engines are transported between the two plants
using trucks. Each truck trip costs $1,000. The motorcycle plant assembles and sells
300 motorcycles each day. Each engine costs $500 and Harley incurs a holding cost
of 20 percent per year. How many engines should Harley load onto each truck?
What is the cycle inventory of engines at Harley?

2. Harley purchases components from three suppliers. Components purchased from

Supplier A at price $5 each, and used at the rate of 20000 units per month.
Components purchased from supplier B are priced at $4 each and used at the rate of
2,500 units per month. Components purchased from Supplier C are priced at $5 each
and used at the rate of 900 units per month. Currently, Harley purchases a separate
truck load from each supplier. As part of its JIT drive, Harley has decided to
aggregate purchase from the three suppliers. The trucking company charges a fixed
cost of $400 for the truck with an additional charge of $100 for each stop. Thus, if
Harley asked for a pick up from one supplier, charges $500; from two suppliers $600;
and from three suppliers it charges $700. Suggest a replenishment strategy for Harley
that minimizes annual cost. Harley incurs a holding cost of 20 percent per year.
Compare the cost of your strategy with Harley’s current strategy of ordering
separately from each supplier. What is the cycle inventory of each component at
Harley?

TUTORIAL WORKSHEET #7 – Managing Economies of Scale in Supply

Chain: Quantity Discount Model

1. Ivonne Callen sells beauty supplies. Her annual demand for a particular skin lotion
is 1,000 units. The cost of placing an order is $20, while the holding cost per unit per
year is 10 percent of the cost. This item currently costs $10 if the order quantity
is less than 300. For orders of 300 units or more, the cost falls to $9.80. To minimize
total cost, how many units should Ivonne order each time she places an order? What
is the minimum total cost?

ANSWER:

With EOQ = 200, the total cost is $10,200.

With Q = 300 to obtain discount, the total cost is $10,013.67.

Therefore, she should order 300 units.

2. Dorsey Distributors has an annual demand for a metal detector of 1,400. The cost
of a typical detector to Dorsey is $400. Carrying Cost is estimated to be 20% of the
unit cost, and the ordering cost is $25 per order. If Dorsey orders in quantities of 300
or more, it can get a 5% discount on the cost of the detectors. Should Dorsey take the
quantity discount? Assume the demand is constant

3. R.C. Barker makes purchasing decisions for his company. One product that he
buys costs $50 8 per unit when the order quantity is less than 500. When the quantity
ordered is 500 or more, the price per unit drops to $48. The ordering cost is $30 per
order and the annual demand is 7,500 units. The holding cost is 10 percent of the
purchase cost. What would you recommend?

4. Georgia Products offer the following discount schedule for its 4- by 8-foot sheets of
good quality plyboard.

ORDER UNIT COST

9 Sheets or less $1,800
10 to 50 sheets $1,750
More than 50 sheets $1,725

Home Sweet Home Company orders plyboard from Georgia Products. Home Sweet
Home has and ordering cost of $450. The carrying cost is 20%. And the annual
demand is 150 sheets. What do you recommend?

Discount ORDER Unit Order Annual Annual Annual

Number Price Quantity Material Ordering Carrying
(C) (Q) Cost Cost Cost Total
(DC) (D/Q * (Q/2*Ch) Cost
S)
1 9 Sheets
$1,800
or less
2 10 to 50
$1,750
sheets
3 51 TO
$1,725
100
4 101 and $1,700
over
 5. The table below shows the results of the total cost analysis. Note that the order
quantity had to be adjusted to 2,000 and 4,000 units for the last two quantity
discounts. In this case, the best decision is not to take the quantity discount. The
order quantity is 894 units, with a total cost of $204,472.
Discount Unit Order Material Ordering Carrying Total
Number Price Quantity Cost Cost Cost Cost
1 $10 894 $200,000 $2,236 $2,236 $204,472
2 9.98 2,000 199,600 1,000 4,990 205,590
3 9.96 4,000 199,200 500 9,960 209,660

6. Assumptions

Order Cost $450

Holding/Carrying Cost 20%
Demand 800 units

Discount ORDER Unit Order Annual Annual Annual

Number Price (C) Quantity Material Ordering Carrying
(Q) Cost (DC) Cost Cost Total
(D/Q * S) (Q/2*Ch) Cost
1 0 - 100 $1,800
2 101 - 500
$1,750
3 501 - 1000
$1,725
4 1001 and $1,700
over

Additional Problem Level Chase

1. LEVEL & CHASE PRODUCTION PLAN - Problem

Cadbury’s chocolate factory produces a variety of chocolate brands. This is a closed
shop unionised environment and an agreement was reached where there can be no
subcontracting. Cadbury’s needs to find out the cost associated with the demand for
its world renown Dairy Fruit and Nut brand. The demand for March to August is
shown in the table below as well as related cost as given by its Operations Manager.

The Operations Manager needs to find a production plan which minimises cost.
Which should he choose? The Level or the Chase method.
Month Demand (Cases)
March 28,000 Beginning Inventory =4000 cases
April 30,000 No. of Beginning workers = 15
May 44,000 Average Monthly Output per worker =
June 44,000 2000 cases per month
July 54,000 Cost of Production = $0.95
August 40,000 Inventory Holding Cost = $0.40 per case
per month
Hiring cost = $2000 per worker
Layoff cost = $4500 per worker
 Financial Management: FIN 3001

Unit 1: Financial Management & Environment

Tutorial Questions

1. Explain to John, your mentor, the primary goal of the organization?

The primary goal is shareholder wealth maximization, which translates into
maximizing stock or share price for current shareholders. In other words, we create
value for the shareholders

2. Would the role of a financial manager be likely to increase or decrease in

importance if the rate of inflation increased?
The role of the Financial Manager would increase because their role is primarily
concerned with analyzing and interpreting financial information; including:
Acquisition of funds short term financing – bank loans, etc. and long term financing –
stocks (equity) and bonds (debt) for investment in assets. Allocation (uses) of funds:
Short term – working capital management, and long term – capital management
(stocks and bonds) Forecasting and planning – this includes providing advice and
recommendations to executive management.

Inflation affects interest rates, costs and investment decisions.

3. What is the difference between stock price maximization and profit maximization?
Profit maximization focuses on increasing accounting profits, often in the short term,
(i) ignores the relative riskiness of different projects (ii) ignores the time value of
money (iii) ignores the profit to the stockholder in favor of profit to the firm. While
stock price maximization focuses on increasing the market value of shares over time.
It considers risk, timing and sustainability.

4. What are the three principal forms of business organization? What are the
advantages and disadvantages of each?

(i) sole proprietorship;- a business owned and operated by an individual.

Pros: easily formed, subject to few government regulations, not subject to corporate
taxes,owner keeps all profit.
Cons: difficult to access large sums of capital, owner has unlimited personal
responsibility for business’ debts, business’ life limited to owner’s life.

(ii) partnerships:- a business owned and operated by two or more individuals.

Pros: each partner bears full responsibility for all the partnership’s liabilities or a
limited partnership where (i) at least one partner will not have limited liability,
(ii)limited partners names should not be included in the firm’s name, and (iii) limited
partners cannot be part of the firm’s management.

(iii) Corporation:- a legal entity separate from its owners. It can buy, sell, and own
property, as well as sue and be sued. It has owners who elect its Board of Directors,
who in turn select its senior corporate officers like president, secretary etc.
Pros: Ownership expressed as common stock units or shares (equity). These are
transferable, and the corporation’s ownership can be changed by transferring shares.
Investor’s liability limited to investment in the firm, thus exempting personal assets
from seizure in settlement of company claims. Because of this limited liability, ease
of ownership transfer through share sales etc corporations have a major advantage
over other forms of organization in the ease of raising capital. Cons: High cost and
complexity of formation, double taxation and strict government regulation.

5. What mechanisms exist to influence managers to act in shareholders’ best interests?

Managers are naturally inclined to act in their own best interests. But the following
factors motivate managers to act in the interest of the shareholders:
 Direct intervention by shareholders. Shareholders can vote out board of
directors at meetings.
 Threat of firing managers. But shareholders usually just sell their stock rather
than try to change management. Institutions collectively holding large blocks of
shares have been known to oust managers
 Threat of hostile takeover. If a company is subject to hostile takeover, the
managers often lose their jobs. Hostile takeovers are probable only if the common
stock price is undervalued. Therefore, managers can discourage hostile takeovers
by maximizing the common stock price.
 Positive incentives – such as properly constructed managerial compensation
plans. Compensation of the managers can be tied to the performance of the
corporation and its common stock

6. What is an agency relationship?

This is a relationship between two parties, principal and agent. The principal hires an
agent to act n their behalf. So share holders; the principal would hire managers; the
agents to act on their behalf.

7. What agency relationships exist within a corporation?

1) Shareholders and Managers
2) Shareholders and Creditors

8. What are financial intermediaries, and what economic functions do they perform?
Financial Intermediary is an institution or individual that serves as a middleman
between two or more parties, typically a lender/ savers and borrower, in order to
facilitate financial transactions.(eg Brokers & Investment Bankers, Commercial
Banks, Building Societies, Credit Unions, Life Insurance Companies etc).

They reduce transaction costs by offering economies of scale making financial

transactions cheaper for individuals. Reduce risks, provide liquidity and improve
allocation of funds.

9. How does an efficient capital market help to reduce the prices of goods and
services?

10. What is the term structure of interest rates? What is a yield curve? How should
users and savers of funds behave if they are faced with a downward sloping yield
curve?
11. Suppose most investors expect the inflation rate to be 5% next year, 6% the
following year, and 7% thereafter. The real risk-free rate is 3.5%. The maturity risk
premium is zero for bonds that mature in 1 year or less, 0.3% for 2-year bonds, and
then the MRP increases by 0.3% per year thereafter for 20 years, after which it is
stable. What is the interest rate on 1-year, 9-year, and 18-year Treasury bonds?
Percentage answers should be rounded to 2 decimal places (0.12%) while decimal
answers are to be rounded to 4 decimal places (0.1234).

12. The real risk-free rate of interest is 4.5%. Inflation is expected to be 4% in the
upcoming year and 6% for each of the next 3 years. Assume that the maturity risk
premium (MRP) is zero. What is the yield on a 3-year Treasury security? What is the
yield on a 4-year Treasury security? Percentage answers should be rounded to 2
decimal places (0.12%) while decimal answers are to be rounded to 4 decimal places
(0.1234).

13. The real risk-free rate is 3.5%, and inflation is expected to be 4% for the next 3
years. A 3-year Treasury security yields 8.1%. What is the maturity risk premium for
the 3-year treasury security?

14. A government bond that matures in 15 years has a yield of 7.8%. A 15-year
corporate bond has a yield of 11.3%. Assume that the liquidity premium on a
corporate bond is 1.7%. What is the default risk premium on the corporate bond?

15. A Digicel bond has a yield of 10.4%. The bond matures in 5 years and has a
maturity risk premium of 0.8%, it has a default risk premium of 1.2%. The average
inflation rate for the period is expected to be 4.2%. The real risk-free rate is 2.7%.
What is the liquidity premium of the Digicel bond?

UNIT 2: FINANCIAL STATEMENT ANALYSIS

Sales

EBIT

Interest Expense

NIAT
Account Receivables

Total Assets

Equity
 1. Why would the inventory turnover ratio be more important when analyzing a
grocery chain than an insurance company?
Inventory turnover ratio is more important when analyzing a grocery chain rather than
an insurance company because a grocery chain sells physical, perishable inventory
that must move quickly while an insurance company doesn't carry inventory,it focus
providing financial protection so the ratio is not useful.

2. If a firm’s ROE is low and management wants to improve it, explain how using
more debt might help.
Use the supplied financial statements for Fontana Limited to answer questions 3-9

3. Calculatethe firm’s accounts receivable ratio in 2019 and 2020 (assume all sales
were on credit). Are they different? What might have caused the difference?

Accounts Receivable Turnover = Sales or Credit Sales

(Acc. Rec.

2019 = 3,701,807,336 = 55.25 times

66,992,605

2020 = 4,509,856,155 = 47.83 times

94,309,180

4. Find the firm’s days sales outstanding (DSO) in 2019 and 2020? (1 year = 365
days) What accounts for the difference between them?

Days Sales Outstanding (DSO) = Accounts Receivable

Average sales per day
2019

2020 = 365 = 7.6 days

47.83

5. Calculate and interpret Fontana’s return on assets (ROA) for 2019 and 2020.
Comment on the difference.

Return on Total Assets (ROA) = NIAT

(Ave) Total Assets
2019 = 306,626,171 = 16.1%
1,909,731,657

2020 = 276,508,096 = 8.8%

3,148,782,764

6. Calculate and interpret the firm’s return on equity (ROE) for 2019 & 2020.
Comment on the difference.

Return on Common Equity (ROE) = Net Income after Tax

(Average) Total Equity

2019 = 306,626,171 = 24.2%

1,266,274,447

2020 = 276,508,096 = 18.5%

1,492,807,550
7. What is Fontana’s basic earning power ratio (BEP) for each year? Give an
interpretation of your answers.

Earning Power Ratio (BEP) = Earnings before Interest & Tax

Total Assets

2019 = 278,594,137 = 14.6%

1,909,731,657

2020 = 419,265,313 = 13.3%

3,148,782,764

8. What is Fontana’s times interest earned (TIE) ratio for 2019 & 2020? Give an
interpretation of your answers.

TIE = EBIT/Interest Expense

2019 = 278,594,137 = 33.5 times

8,329,088

2020 = 419,265,313= 2.7 times

155,373,613

9. For 2019 & 2020, find Fontana’s (i) current ratio (ii) quick ratio? Interpret your
results.

Current Ratio = Current Assets

Current Liabilities

2019 = 1,041,914,031= 1.65

631,324,998

2020 = 1,359,635,168 = 2.12

642,212,677

Quick (or Acid) Ratio = (Current Assets – Inventory)

Current Liabilities

2019 = 1,041,914,031 - 570,989,831= 0.75

631,324,998

2020 = 1,359,635,168 - 650,602,515 = 1.10

642,212,677
10. Blue Ice Limited has $10B in assets and its tax rate is 25%. The firm’s Basic
Earning Power ratio is 18% and its return on assets (ROA) 12%. What is Blue Ice
Limited TIE ratio?

TIE = EBIT/Interest Expense

=

11. TOS Company has an EPS of $5.00, a book value per share of $30, and a
market/book value ratio of 1.5x. What is TOS’s P/E ratio?

12. Logan Manufacturing currently has $1,000,000 in accounts receivable. Its days
sales outstanding (DSO) is 40 days. It wants to reduce its DSO to the industry average
of 25 days by pressuring customers to pay on time. The Chief Financial Officer
(CFO)
estimates that average sales will fall by 12% if the policy is adopted. Assuming the
firms achieves the DSO of 25 days and suffers the 12% sales decline, what will be the
new level of accounts receivable? Assume 1 year =365 days

13. Petland Limited has $8M in sales. Its ROE is 10% and total assets turnover is 2.0
times. Petland is 70% equity financed. What is its net income?

14. Complete the following balance sheet using the given information: Debt ratio =
40%. Total assets turnover = 1.8, current ratio = 2.1, DSO = 20 days, gross profit
margin [(sales – cost of goods sold)/sales] = 40%, Inventory turnover ratio = 6.
(Assume 360 days)

UNIT 3: Risk and Rates of Return

TUTORIAL QUESTIONS

1. If a company's beta were to double, would its returns double?

“Beta measures market (non-diversifiable) risk, not actual
Doubling beta increases required return, not actual return.

2. Suppose you owned a portfolio consisting of US$250,000 worth of long-term US

government bonds.

(i) Would your portfolio be riskless?

No asset is completely riskless due to inflation.”
No. Although default risk is negligible, the portfolio is exposed to:
Interest rate risk
Inflation risk
(ii) Suppose you hold a portfolio of $250,000 worth of 30-day Treasury bills. Every
30 days your bills mature, and you reinvest the principal in a new batch of bills.
Assume you live on the investment income from your portfolio and that you want
to maintain a constant standard of living. Is your portfolio truly riskless?

No. While T-bills have minimal default risk, the portfolio faces:Reinvestment
riskInflation risk, which affects purchasing power and standard of living
(ii) Can you think of any asset that would be completely riskless? Explain.
In practice, no asset is completely [Link] risk-free securities face inflation risk.
A real risk-free asset would require a guaranteed inflation-adjusted return, which does
not exist.

3. PCB Corporation is a holding company with four main subsidiaries. The percentage
of its business coming from each of the subsidiaries, and their respective betas are as
follows:

(i) What is the holding company's beta?

The holding company’s beta is the weighted average of subsidiary betas:βp=∑wiβi
(ii) Assume that the risk-free rate is 4.5% and the market risk premium is 6.5%. What
is the holding company's required rate of return?
ks = krf + (km – krf) ßs
k=4.5%+β(6.5%)

(iii) PCB is considering a change in its strategic focus. It will reduce its reliance on
the Agro-industry, so the percentage of its business from this subsidiary will be 13%.
At the same time, it will increase its reliance on the Retail, so the percentage of its
business from that division will rise to 26%. What will be the shareholders' required
rate of return if they make these changes?
Recalculate the new weighted beta, then substitute into CAPM: knew=4.5%
+βnew(6.5%)
Increasing exposure to higher-beta Retail increases shareholders’ required return.
4. Jane Katy, a mutual fund manager, has a $18 million portfolio with a beta of 1.2.
The risk-free rate is 4.5% and the market risk premium is 5.5%.

(i) What is the required rate of return for this portfolio?

k=4.5%+1.2(5.5%)=11.1%

(ii) Jane expects to receive an additional $7 million, which she plans to invest in
several stocks. After investing the additional funds, she wants the fund’s required
return to be 12.2%. Given the new required return what is the average beta of the new
portfolio?
12.2%=4.5%+β(5.5%) β=1.40

(iii) What is the average beta of the $7 million-dollar investment?

1.40=(18//25)(1.2)+(7/25)(βx)
β=1.91

5. An individual has $27,000 invested in a stock that has a beta of 0.8 and $38,000
invested in a stock with a beta of 1.4. If these are the only investments in her
portfolio, what is her portfolio's beta?
βp=27,000(0.8)+38,000(1.4)/ 65,000
βp=1.15

6. Assume that the risk-free rate is 4.8% and the expected return on the market is
12.4%. What is the required rate of return on a stock that has a beta of 1.15?
Rm=12.4%, Rf=4.8%
k=4.8%+1.15(7.6%)=13.54%

7. Assume the risk-free rate is 4.25% and the market premium is 6.5%, What is the
expected return for the overall stock market? What is the required rate of return on a
stock that has a beta of 0.78?
Market return Rm=4.25%+6.5%=10.75%
Stock (β = 0.78) k=4.25%+0.78(6.5%)=9.32%

8. Stocks A and B have the following historical returns:

(i) Calculate the average return for each stock during the period 2016 to 2020.

Rˉ=n∑R
Stock A
RˉA=−16.0+33.5+15.8−0.8+26.0/5=11.7%
Stock B
RˉB=−12.2+22.3+32.2−9.2+25.4/5=11.7%

(ii) Assume that someone held a portfolio consisting of 50% A and 50% B. What
would have been their realized rate of return on the portfolio in each year from 2016
to 2020? What would have been the average return on the portfolio during this
period?
Rp=0.5RA+0.5RB
Yea Portfolio Return
r (%)
201
-14.1
6
201
27.9
7
201
24.0
8
201
-5.0
9
202
25.7
0

Average portfolio return

Rˉp=11.7%

(iii) Calculate the standard deviation of returns for each stock and for the portfolio.
Stock A:
σA=20.13%
Stock B:
σB=20.79%
Portfolio:
σp=19.71%
Observation: Portfolio risk is lower than both individual stocks due to
diversification.

(iv) Calculate the coefficient of variation for each stock and for the portfolio.

CV=Rˉσ
Stock A:
CVA=20.13/11.7=1.72
Stock B:
CVB=20.79/11.7=1.78
Portfolio:
CVp=19.71/11.7=1.68
Lower CV = less risk per unit of return

(v) Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock
B, or the portfolio? Why?
A risk-averse investor would prefer the portfolio because:
It has the same expected return (11.7%)
It has the lowest standard deviation
It has the lowest coefficient of variation
Diversification reduces risk without reducing return
✅ Final answer: The portfolio is preferred

9. Stocks X and Y have the following probability distributions of expected future

returns

(i) Calculate the expected rate of return, k, for stock Y (kX = 10.6%)
kY=∑(Pi×Ri) =(0.10)(−35)+(0.25)(0)+(0.35)(20)+(0.25)(25)+(0.05)
(45)
=−3.5+0+7.0+6.25+2.25
kY=12.0%

(ii) Calculate the standard deviation of expected return for stock X. (That for Y is
19.39%)

RˉX=10.6%
σX=√∑Pi(Ri−Rˉ)2]
Outco (R_i (R_i - \ ((R_i - \ (P_i (R_i - \
me ) bar{R}) bar{R})^2) bar{R})^2)
1 -10 -20.6 424.36 42.44
2 2 -8.6 73.96 18.49
3 12 1.4 1.96 0.69
4 20 9.4 88.36 22.09
5 38 27.4 750.76 37.54

Variance=121.24
σX=√121.24≈11.01%
(Given: σY=19.39%

(ii) Calculate the coefficient of variation for stocks X and Y.

CV=Rˉσ
Stock X
CVX=11.01/10.6=1.04
Stock Y
CVY=19.39/12.0=1.62

(iii) As a risk averse investor, which stock would you prefer?

A risk-averse investor prefers the investment with the lower coefficient of variation,
as it has less risk per unit of return.
Stock X: CV = 1.04
Stock Y: CV = 1.62
Although Stock Y has a higher expected return, Stock
X provides much lower risk per unit of return.
Therefore, a risk-averse investor would choose Stock
X.
X is preferred

10. Stock X has a 10.5% expected return, a beta coefficient of 0.75, and a 30%
standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta
coefficient of 1.4 and a 26% standard deviation. The risk-free rate is 4.5% and the
market risk premium is 6%.

(i) Calculate each stock’s coefficient of variation.

X: CV=0.30/0.105=2.86· ·
Y: CV=0.26/0.125=2.08
·
(ii) Which stock is riskier for a diversified investor?
Stock Y (higher beta)

(iii) Calculate each stock’s required rate of return.

·X: 4.5%+0.75(6%)=9.0%
·Y: 4.5%+1.4(6%)=12.9%
·
(iv) Based on the two stocks expected and required rates of return which stock would
be more attractive to a diversified investor?
Stock Y (Expected return > required return)

(v) Calculate the required rate of return of a portfolio has $6,200 invested in Stock X
and $3,800 invested in Stock Y.

βp=6200(0.75)+3800(1.4)/ 10,000=0.99
k=4.5%+0.99(6%)=10.44%

(vi) If the market risk premium increased to 8%, which of the two stocks would have
the larger increase in its required return?
Stock Y (higher beta)

(vii) If the risk-free rate increased to 6%, and the market risk premium remains at 6%,
which of the two stocks would have the larger increase in its required return?
Both stocks increase equally

11. Suppose you hold a diversified portfolio consisting of $5,000 investment in each
of 10 different common stocks. The portfolio beta is 1.55. Now, suppose you decide
to sell one of the stocks in your portfolio with a beta equal to 0.9 for $5,000 and to use
these proceeds to buy another stock for your portfolio. Assume the new stock's beta is
1.87. Calculate the new portfolio's beta.
βnew=1.55+1.87−0.9/10=1.65

`12. Suppose you are the money manager of a $2.5 million investment fund. The fund
consists of 4 stocks with the following investments and betas:

If the market required rate of return is 12.3% and the risk-free rate is 3.8%, what is the
fund's required rate of return?
Step 1: Calculate Portfolio Weights
wi=Investment in stock i/ Total portfolio value
Stoc
Weight (w)
k
A 250,000 / 2,500,000 = 0.10
B 350,000 / 2,500,000 = 0.14
C 650,000 / 2,500,000 = 0.26
1,250,000 / 2,500,000 =
D
0.50

Step 2: Calculate Portfolio Beta

βp=∑(wiβi)
βp=(0.10)(1.50)+(0.14)(−0.50)+(0.26)(1.25)+(0.50)(0.75)
βp=0.15−0.07+0.325+0.375
βp=0.78

Step 3: Calculate Market Risk Premium

(Rm−Rf)=12.3%−3.8%=8.5%

Step 4: Calculate Fund’s Required Rate of Return (CAPM)

kp=Rf+βp(Rm−Rf)
kp=3.8%+0.78(8.5%)
kp=3.8%+6.63%
kp=10.43%The fund’s required rate of return is
13. You have been managing a $3.6 million portfolio which has a beta of 1.25 and
a required rate of return of 14.5%. The current risk-free rate is 4.25%. Assume
that you receive another $400,000. If you invest this money in a stock with
beta 0.75, what will be the required rate of return on your $4 million
portfolio?
βnew=3.6(1.25)+0.4(0.75)/4.0=1.20
k=4.25%+1.20(8.2%)=14.09%

14. Bradford Manufacturing Company has a beta of 1.25, while Farley Industries has
a beta of 0.95. The required return on an index fund that holds the entire stock market
is 13.5%. The risk-free rate of interest is 5.3%. By how much does Bradford’s
required return exceed Farley’s required return?

Market risk premium: 13.5%−5.3%=8.2%

Required returns:
Bradford: 5.3%+1.25(8.2%)=15.55%
Farley: 5.3%+0.95(8.2%)=13.09%

Difference:
15.55%−13.09%=2.46%