PINE TREES, INC. – QUESTIONS ASSIGNMENT 2015

| August 30, 2017

Question
PINE TREES, INC. – QUESTIONS
Before Ms. Marcus replies to Mr. Washington, write an objective report to her (refer to the report
guidelines on the Gateway web site), addressing the following questions. (Assume that the
applicable precedent is from the fictional jurisdiction of the state of Gould).
Q. 1.

Is the disclaimer of any consequential damages contained in the Purchase Order
Acknowledgment part of the agreement between Burger and Pine?

Q. 2.

Using MS Excel and the data given in the case:
a.

b.

How confident are you of this estimate? Calculate a 99% confidence
interval for weekly profits, assuming that sigma is unknown. What does this
tell you about weekly profits?

d.

Q. 4.

What was the average weekly profit for the prior 12-month period?
Determine and define the variance and standard deviation of weekly profit.

c.

Q. 3.

Create a histogram of the weekly operating profits from the prior year of
operation, using 6 equal sized bins. What is the mode on the histogram?
How would you define it? Which probability distribution does the histogram
resemble? (You may wish to use the Excel file Pine Case.xls at the
Gateway web site.)

Based on the above, what is the expected exposure on the lost profits
claim?

Assuming that the consequential damages clause is deemed not part of the contract and
further assuming that the delivery crew was negligent in decorating the tree, could Pine
be held liable for the lost profits? In answering this question, make sure to address the
legal standard for awarding lost profits and the results from Q. 2. (Assume that
expenses and revenues are similar from year to year)
Assume that, based on Q. 2. d. above, Pine made an initial settlement offer to Burger.
However, on behalf of Burger, Mr. Washington declined the offer because he felt the offer
underestimated the lost profits. He stated that profits from the last six months (26 weeks)
before the fire are more indicative of future expected profits. He feels that only data from
the last six months should be used to calculate future expected profits.
a. To formally test Mr. Washington’s claim, test to see if there was a significant
difference in mean weekly profits between the first 6 months of the year and
the last 6 months. Use a 0.05 significance level and assume equal
variances. Does this support Mr. Washington’s claim?
b. Having thought about Mr. Washington’s suggestion, you consider several
options as an estimate of lost profits. These include 1) the full year, 2) the
last six months only, 3) a weighted average that gives twice the weight to
the last six months as to the first six months, or 4) some other weighted
average. Which method do you think gives the most accurate estimate of
lost profits?

In preparing your report you may wish to review business law concepts 1, 2 and 10 and statistics
concepts 1, 2, 3 and 9.

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