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6. Estimate the effect on the income of Prestige Data Services from a) Increasing the price to commercial customers to $1,000 per hour that would reduce commercial revenue hours by 30% over March levels (0.75 points) Exhibit 1 Prestige Data Services Summary of Computer Utilization, First Quarter 2003 Exhibit 2 Prestige Data Services Summary Results of Operations, First Quarter 2003 b) Reducing the price to commercial customers to $600 per hour that would increase commercial revenue hours by 30% over March levels ( 0.75 points) c) Increasing sales promotion expense by $7,000 (fixed) that would increase commercial revenue hours by 10% over March levels (0.5 points) (Note: For this question, use your estimates of fixed and variable costs from the simple regression analysis. Use the Cost Volume Profit Equation: =(PVC)QFC directly to assess how changes in price and quantity demanded affect contribution and hence, profits. Assume parent demand is 205 hours and parent company is billed at $400 per hour.) 7. Based on your analysis, is the subsidiary really a problem to Prestige Telephone Company? (1 point) 8. Consider carefully the differences between reported costs (in Exhibit 2) and costs relevant for decision-making. What costs do you think are relevant to the decision to close down Prestige Data Services? (Note: For this question, discuss what costs can be saved by Prestige Telephone Company by closing down Prestige Data Services.) (1 point)

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