Here are earnings per share for two companies by quarter from the fi rst quarter of 2006 through the second quarter of 2009. Forecast earnings per share for the rest of 2009 and 2010. Use exponential smoothing to forecast the third period of 2009, and the time series decomposition method to forecast the last two quarters of 2009 and all four quarters of 2010. (It is much easier to solve this problem on a computer spreadsheet so you can see what is happening.)

EARNINGS PER SHARE QUARTER COMPANY A COMPANY B 2006 2007 2008 2009 I

II III IV I

II III IV I

II III IV I

II

$1.67 2.35 1.11 1.15 1.56 2.04 1.14 0.38 0.29 0.18 (loss)

0.97 (loss)

0.20 1.54 (loss)

0.38

$0.17 0.24 0.26 0.34 0.25 0.37 0.36 0.44 0.33 0.40 0.41 0.47 0.30 0.47

a. For the exponential smoothing method, choose the fi rst quarter of 2006 as the beginning forecast. Make two forecasts: one with ␣ 0.10 and one with ␣ 0.30.

b. Using the MAD method of testing the forecasting model’s performance, plus actual data from 2006 through the second quarter of 2009, how well did the model perform?

c. Using the decomposition of a time series method of forecasting, forecast earnings per share for the last two quarters of 2009 and all four quarters of 2010. Is there a seasonal factor in the earnings?

d. Using your forecasts, comment on each company.