Category Archives: Management Science

Management Science Series #158: Solution to the ‘Understanding acquisitions costs, retention and churn rates (Nintendo example)’ 🧮

Understanding acquisitions costs, retention and churn rates 🧮

Nintendo has launched Nintendo Online membership program. The membership allows members to play additional retro Nintendo games, as well as store data. Subscribers are charged $10 per month and cost of maintaining this service is $2 per month per customer.

Nintendo expects the churn rate for this service to be 3%.

What is the maximum acquisition cost per customer?

Nintendo has a four-year time horizon for this new project so that the success of this project will be evaluated over a 4-year time period. Time value of money is not important and can be ignored.

Management Science Series #156: Solution to the Understanding Receivables and Revenue Recognition: Medium

Refer to Amazon 10-K for the year 2020.

Record summary journal entries related to the allowance for doubtful accounts for the current year!

What was the effect of bad debt expense entry on “Income before income taxes?” What was the effect on “Net cash provided by operating activities?”

What was the effect of the write-off entry on “Income before income taxes?” What was the effect on “Net cash provided by operating activities?”

Did bad debt expense as a percentage of Net revenues increase or decrease from 2019 to 2020?
Did management disclose any information indicating the reason for the increase or decrease?
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Assume that all of Amazon’s sales to customers are on account. Its 10-K indicates that $1 billion bad (trade) accounts receivable were written-off in 2020 and there were no reinstatements. Bad debt expense for the period were recorded by debiting “General and Administrative Expenses” and crediting the “Allowance for doubtful accounts.” What amount of bad debt expense was recorded in 2020?

Assuming all sales revenues were on account, what were collections on accounts receivable during 2020?

Solution to Management Science Series-3: Learn Finance💹

Learn Finance. 💹

At least the basics.

Whether you use it for your retirement, financial independence or investment plans, you are required to know the basics of finance. 💰

Up for a quick test ⬇️

-You plan to retire within 20 years from now.

-You need to cover first 5 years of your retirement through your own savings.

-You think that during these first 5 years of your retirement, your expenses will run $200,000 per year.

-You have found an investment vehicle that will help you earn 9% annually on your savings throughout the following decades.

Question:

How much money should you save each year on average, i.e. in terms of equal amounts per year, until your retirement so that you will solely rely on these savings without running out of money throughout the first 5 years of your retirement?

Management Science Series #155: Solution to the Introduction to Portfolio Theory: Part 19 Hard 🧠

A portfolio that combines the risk-free asset and the market portfolio has an expected return of 9% and a standard deviation of 13%.

The risk-free rate is 5% and the expected return on the market portfolio is 14%.

Assume that the CAPM holds in that market!

What expected return should a security earn if it has a 0.53 correlation with the market portfolio and a standard deviation of 61%?

Management Science Series #154: Solution to the Introduction to Portfolio Theory: Part 18 Medium 🧠

Introduction to Portfolio Theory: Part 18 Medium 🧠

Could you answer the following questions correctly?

-According to the CAPM, can a stock have a negative expected return?

-Why would you invest in a risky security with an expected return that is lower than the risk-free rate?

-Can a security have a low beta and a high standard deviation?

-What would you say about the expected return on a security with low beta and high SD?

Management Science Series #153: Solution to the Introduction to Portfolio Theory: Part 17 Medium 🧠

Introduction to Portfolio Theory: Part 17 Medium 🧠

Calculate the expected return on Walmart stock, using CAPM!

Rely on the publicly available information to calculate the necessary input values!

1-Y US Treasury bill will be the proxy for the risk-free asset.

The relevant market will be S&P 500!

Use the information for the last 3 years!

Resources are limited and customers are smarter. So, marketing efforts should change, too! 🔔On the importance of customer reviews

Resources are limited and customers are smarter.
So, marketing efforts should change, too! 🔔

A consumer, who is trained and smart enough to distinguish between what is fake and what is wrong, will continue to rely on online reviews throughout the decision journey and is less likely to be affected by traditional marketing activities.

Their numbers are increasing and in a world where businesses try hard to decommodify products and services and differentiate them, spend your marketing budget wisely.

Management Science Series #152: Solution to the Introduction to Portfolio Theory: Part 16 Hard 🧠

Introduction to Portfolio Theory: Part 16 Hard 🧠

Calculate beta of the Amazon public stock! Use publicly available data and rely on the information for the last 3 years.

The relevant market will be NASDAQ.

Can you estimate the beta without calculating it exactly?

Using the results of your calculation, explain what beta means and compare the value you calculated with the values publicly available for the Amazon stock (are they the same or different and why?)!

Management Science Series #151: Solution to the Introduction to Portfolio Theory: Part 15 Medium🧠

Introduction to Portfolio Theory: Part 15 Medium 🧠

1. What sort of investor rationally views the variance of an individual security’s return as the security’s proper measure of risk?

What is the risk of the portfolio for this investor?

2. What sort of investor rationally views the beta of a security as the security’s proper measure of risk?

What is the risk of the portfolio for this investor?