Question: Bombardier of Montreal.
Bombardier designs and manufactures trains and planes and relies on large deals from its customers for these high cost products. This series of large contracts makes for a very variable revenue stream, compared with the more even income it derives from long term service contracts. The share of revenue from services dropped from 21% to 14% between 2007 and 2010 compared to the much higher figure of 51% for Rolls-Royce in 2010. In 2011, Nina Gupta, an analyst, predicts that Bombardier's service share will drop to 13% with a standard deviation of 1% in 2014 and that Rolls-Royce's service share will increase to 54% with a standard deviation of 2%. Assuming you believe Nina's forecast, what is the probability that
(a) Bombardiers service share will be lower in 2014 than in 2010 and
(b) Rolls Royce's service share will be higher in 2014 than in 2010.
(c) State your assumptions clearly and whether you think the assumptions are true.
(d) "Bombardier's service % is still going down while Rolls Royce's is going up" says Nina in her report.