Benjamin Moses, chief engineer of Offshore Chemicals, Inc., must decide whether to build a new processing facility based on an experimental technology. If the new facility works, the company will realize a net profit of $20 million. If the new facility fails, the company will lose $10 million. Benjamin’s best guess is that there is a 40 percent chance that the new facility will work. What decision should Benjamin Moses make?
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Benjamin Moses, chief engineer of Offshore Chemicals, Inc., must decide whether to build a new processing facility based on an experimental technology. If the new facility works, the company will realize a net profit of $20 million. If the new facility fails, the company will lose $10 million. Benjamin’s best guess is that there is a 40 percent chance that the new facility will work.
What decision should Benjamin Moses make?
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- John Corner, chief engineer of Offshore Chemicals, Inc., have to decide whether to build a new processing facility based on an experimental technology. If the new facility works, the company will realize a net profit of $20 million. If the new facility fails, the company will lose $10 million. Benjamin’s best guess is that there is a 40 percent chance that the new facility will work What decision should Benjamin Moses make?A new minor league baseball team is coming to town and the owners have decided to build a new stadium, either small or large. The success of the team with regard to ticket sales will be either high or low with probabilities of 0.75 and 0.25, respectively. If demand for tickets is high, the large stadium would provide a payoff of approximately $20 million. If ticket sales are low, the loss on the large stadium would be $5 million. If a small stadium is constructed, and ticket sales are low, the payoff is $500,000 after deducting the cost of construction. If ticket sales are high, the team can choose to build an upper deck, or to maintain the existing facility. Expanding the stadium in this scenario has a payoff of $10 million, whereas maintaining the same number of seats has a payoff of only $3 million. a. Draw a decision tree for this problem. b. What should management do to achieve the highest expected payoff?1. Kirsten is trying to decide where to go for her well-earned vacation. She would like to camp, but if the weather is bad, she will have to go to a motel. Given the costs and probabilities of bad weather given below, which destination should she choose? Camping cost Motel cost Probability of bad weather Nevada $21.2 $80.9 0.2 Oregon $15.9 $84.6 0.4 California $30 $95 0.1 a. California, because its EMV = $33.14 b. Nevada, because its EMV = $33.14 c. California, because its EMV = $36.5 d. Any of the 3 choices. e. Oregon, because its EMV = $43.38 f. Nevada, because its EMV = $43.38 g. None of the 3 choices. h. Oregon, because its EMV is $36.50.
- 1. Procter, president of a food company, must decide whether to market a new breakfast drink which the R and D division has developed. A special meeting devoted to this topic yields the following information: ● The marketing vice-president has defined two possible outcomes for the success of this product; either the public will accept the product, or it will not. She believes that the product will be accepted with probability 0.1. The cost engineers believe that if the product is marketed and accepted, the company will net $100,000 yearly. If the product is rejected, however, the company will suffer a net loss of $20,000 yearly. If Procter decides not to market the product, her company will neither accrue more cost nor make any profit on this product. ● Procter always makes decisions based on the expected value of the outcomes. A. What is the best strategy in this case? B. Compute for EVPI.1. Procter, president of a food company, must decide whether to market a new breakfast drink which the R and D division has developed. A special meeting devoted to this topic yields the following information: ● The marketing vice-president has defined two possible outcomes for the success of this product; either the public will accept the product, or it will not. She believes that the product will be accepted with probability 0.1. ● The cost engineers believe that if the product is marketed and accepted, the company will net $100,000 yearly. If the product is rejected, however, the company will suffer a net loss of $20,000 yearly. If Procter decides not to market the product, her company will neither accrue more cost nor make any profit on this product. ● Procter always makes decisions based on the expected value of the outcomes.Johnson Chemicals is considering two options for its supplier portfolio. Option 1 uses two local suppliers. Each has a "unique-event" risk of 5%, and the probability of a "superevent" that would disable both at the same time is estimated to be 1.5%. Option 2 uses two suppliers located in different countries. Each has a "unique-event" risk of 13%, and the probability of a "super-event" that would disable both at the same time is estimated to be 0.2%.
- Johnson Chemicals is considering two options for its supplier portfolio. Option 1 uses two local suppliers. Each has a “unique-event” risk of 5%, and the probability of a “superevent” that would disable both at the same time is estimated to be 1.5%. Option 2 uses two suppliers located in different countries. Each has a “unique-event” risk of 13%, and the probability of a“super-event” that would disable both at the same time is estimatedto be 0.2%. a) What is the probability that both suppliers will be disruptedusing option 1?b) What is the probability that both suppliers will be disruptedusing option 2?c) Which option would provide the lowest risk of a total shutdown?Alternative Alternative 1 Alternative 2 Alternative 3 State of Nature Outcome 1 ($) 800 500 700 0.62 Probability according to the payoff table? OEMV (Alternative 1) = $900 EMV (Alternative 3) is the highest EMV EMV (Alternative 2) = EMV (Alternative 3) EMV (Alternative 1) is the highest EMV Outcome 2 ($) 1000 1200 900 0.38 Which of the following statements is correctJohnson Chemicals is considering two options for its supplier portfolio. Option 1 uses two local suppliers. Each has a "unique-event" risk of 5.8%, and the probability of a "super-event" that would disable both at the same time is estimated to be 1.4%. Option 2 uses two suppliers located in different countries. Each has a "unique-event" risk of 11%, and the probability of a "super-event" that would disable both at the same time is estimated to be 0.18%. a) The probability that both suppliers will be disrupted using option 1 is 0.01731 (round your response to five decimal places). b) The probability that both suppliers will be disrupted using option 2 is 0.0121 (round your response to five decimal places).
- Ronald Lau, chief engineer at South Dakota Electronics, has to decide whether to build a new state-of-the-art processing facility. If the new facility works, the company could realize a profit of $200,000. If it fails, South Dakota Electronics could lose $180,000. At this time, Lau estimates a 60% chance that the new process will fail. The other option is to build a pilot plant and then decide whether to build a complete facility. The pilot plant would cost $10,000 to build. Lau estimates a 50 - 50 chance that the pilot plant will work. If the pilot plant works, there is a 90% probability that the complete plant, if it is built, will also work. If the pilot plant does not work, there is only a 20% chance that the complete project (if it is constructed) will work. Lau faces a dilemma. Should he build the plant? Should he build the pilot project and then make a decision? Help Lau by analyzing this problem. PxThere are two outcomes: a good market and a bad market. , The decision table is presented below. There are four alternatives: do nothing, build a small plant, build a medium-size plant, and build a large plant. PAYOFFS Outcomes Alternatives Good market Bad market Do nothing $0 $0 Small Plant $30,000 ($10,000) Medium Plant $100,000 ($15,000) Large Plant $200,000 ($30,000) So you are to workout the Maximax, the Maximin, the Equally likely the Hurwicz based on a .11 probability and the regret using minimax. In words give the answers to these questions: What are your answers under: Answers Best payoff option for maximax is Common Stock Best payoff option for maximin is doing nothing Best payoff option for equally likely is Common Stock Best payoff option for Hurwicz is doing nothing Put a Bold Box around the word Outcomes Keep the Bad Market amounts in Red Ink Make the type style Ariel and Size 12 in Black8. Ms. Rabiya Mateo and Ms. Sandra Lemonon, two real-estate investment partners, are assessing the relative risks of a prime property in Taguig City, and a comparable property in a similarly vibrant area of Iloilo City. One partner discounts heavily the value of the Taguig property because of the potential earthquake damage. The Taguig City-averse partner is most likely influenced by which element of risk management analysis? a. Risk Prioritization b. Risk Severity c. Risk Psychology d. Risk Response