# Dealing with the Joint Impact Dad Pays But doesn’t know how much - PowerPoint PPT Presentation

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Dealing with the Joint Impact Dad Pays But doesn’t know how much. Ted Mitchell. The problem of how much. Should Dad pay Was solved for a improved partial performance when you got a higher interest rate

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Dealing with the Joint Impact Dad Pays But doesn’t know how much

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## Dealing with the Joint ImpactDad Pays But doesn’t know how much

Ted Mitchell

### The problem of how much

• Was solved for a improved partial performance when you got a higher interest rate

• We measured the impact that the difference in the interest rate had on the difference in the interest payments

I∆R = min(A1,A2) x ∆R

I∆R = \$200 x 1% = \$2

Interest rate

I∆A = min(R1,R2) x ∆A

I∆A = 4% x -\$300 = -\$12

5%

∆R = 1%

4%

\$200

Account size

\$500

∆A = -\$300

What happens when both the things change in the same direction!

Interest rate

5%

∆R = 1%

4%

\$200

Account size

\$500

∆A = -\$300

### If Both Changes are in the

• Same Direction (+ or –)

• Then the entire problem changes

• Your bank account increases (not decreases) from \$200 to \$500

• ∆A = + \$300

• Your interest rate increases by ∆r = 1%

• Your interest payment increases by ∆Z = (\$25 - \$8) = \$17

Interest rate

5%

4%

Old Payment of 4% x \$200 = \$8

\$200

Account size

\$500

∆A = -\$300

The new payment is 5% x \$500 = \$25

Interest rate

5%

∆R = 1%

4%

\$200

Account size

\$500

∆A = -\$300

The new payment is 5% x \$500 = \$25

Interest rate

5%

∆R = 1%

4%

Old Payment of 4% x \$200 = \$8

\$200

Account size

\$500

∆A = -\$300

### Start Again: \$200 account that grows

The total new payment is

0.05 x \$500 = \$25

Interest rate

5%

Impact of ∆R =\$2

J =\$3

∆R = 1%

4%

Old Payment of \$8

Impact of the ∆A = \$12

\$200

Account size

\$500

∆A = -\$300

### The \$3 is a Joint impact

Now the \$3 is here it does exist!

Interest rate

5%

∆R = 1%

4%

\$200

Account size

\$500

∆A = -\$300

The \$3 is here as a joint impact!

An Interaction term

A synergy term

Interest rate

5%

∆R = 1%

4%

\$200

Account size

\$500

∆A = -\$300

It is the result of both changes together!

Interest rate

5%

Joint

∆R = 1%

4%

\$200

Account size

\$500

∆A = -\$300

### The Total Impact Equation

• ∆Z = I∆A + I∆R + J

• Change in the payment, ∆Z = (the Impact of the Difference in the size of the Account, I∆A) +

• (the Impact of the Difference in the Interest Rate, I∆R) +

• (the Joint Impact (if any), J, of the differences in the two factors.)

The total new payment is \$25

Interest rate

5%

Impact of ∆R =\$2

J =\$3

∆R = 1%

4%

Payment of \$8

Impact of the ∆A = \$12

\$200

Account size

\$500

∆A = -\$300

### How should the \$3 due to joint impact

• Be allocatedThree possible solutions:

• 1) All to the difference in account size?

• 2) All to the difference in interest rate?

• 3) Split it in half

• 4) Split proportionately between the two factors?

• Accountants favor solutions #1 & #2

• Marketing Managers favor solution #4

• Any questions on the Joint Impact or Synergy created with simultaneous changes in the factor’s that determine a machines performance?