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36106
Managerial Decision Modeling
Hand-in Assignment #6
(due: before Week 7 lecture)
Rules:
1. This is a group work assignment.
2. There are two (2) questions.
3. Submit your excel file with
working PrecisionTree models
and the assignment write-up file
through Canvas by the time indicated.
Read the assignment submission rules on Canvas and
prepare your files accordingly.
1
Freemark Abbey Winery [14 points]
Read the case
Freemark Abbey Winery
. The case describes a harvesting decision problem facing a
winemaker.
We will create a simple decision tree model to identify the strategy that maximizes the
expected revenue of the winery.
Clarifications:
1. The case concerns harvesting grapes for Riesling wine.
Assume that under normal conditions,
Freemark Abbey will harvest enough grapes for 1000 cases of Riesling, where each case contains
12 bottles.
2. In the case it states that if there is a storm, but no botrytis mold forms, the berries swell by
5-10%. In your calculations assume that in this event the quantity of wine produced (or grapes
sold) increases by a multiple of 1.075.
3. In the case it states that if there is a storm, and botrytis mold forms, there is a 30% reduction in
juice. In your calculations assume that in this event the number of cases produced/sold decreases
by 30%.
4. Some parts of the case may be ambiguous with room for judgment call. Your recommendation
would depend on your interpretation of the situation.
State
whatever
assumptions
you
made
in
your
analysis.
Answer the following questions:
(a) Should William Jaeger harvest the Riesling grapes immediately to avoid the potential consequences
of the possible storm, or should he leave them on the vines and take his chances? In your report,
clearly identify the temporal sequence of events.
(b) How much would Jaeger be willing to pay for a
perfect
weather forecast about whether the storm
will hit the Napa Valley or not?
Business 36106
Assignment 6
2
Scor-eStore.com [16 points]
Read the case
Scor-eStore.com
. We will only concern with half of the case: the suggestions made by
Allen and Soares.
The case concerns a venture capitalist, Lance Bernard, who is considering whether to invest in a sheet-
music viewer startup idea of two entrepreneurs. His initial back of the envelope calculations discouraged
him from going ahead with investing.
However, a few of Lance’s friends have suggested him some
contingency plans which may make investing profitable.
Use decision tree to determine the value of the
first
two
options of Lance’s friends:
(a) Sell the viewer if the website is not a winner
(b) Sell the website if the website is a winner and the viewer is not functional
You should create
three decision trees
: evaluating the options separately, as well as using both options
together. (Note: in your decision tree models, do not enforce the use of these options. Let your model
decide if these options should be pursued.) What is the change in profitability of investment if Lance
uses only Option (a)? Only Option (b)? Both Options (a) and (b)?
Pay attention to the timing of when you discount cash flows.
2
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Assignment Details
Introduction to Business (BUSG-129-WJ1 CRN: 23348)
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