4. You are evaluating the possibility that your company bids $150,000 for a particularconstruction job.(a) If a bid of $150,000 corresponds to a relative bid of 1.20, what is the dollar profit thatyour company would make from winning the job with this bid? Show your work.(b) Calculate an estimate of the expected profit of the bid of $150,000 for this job. Assumethat, historically, 55 percent of the bids of an average bidder for this type of job wouldexceed the bid ratio of 1.20. Assume also that you are bidding against three otherconstruction companies. Show your work.

Answered: Image /qna-images/answer/9a46b125-ee41-45a2-86cd-046ea79eb065.jpg

Answered: 4. You are evaluating the possibility…

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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A lawyer considers taking a case figures that there is a 40% chance of winning the case in court and earning his firm $400,000, a 50% chance of losing the case in court and costing his firm $150,000, and a 10% chance of settling out of court and bringing in $200,000. What is the expected payoff of the case for the firm?
Mike, a lumber wholesaler, is considering the purchase of a (railroad) car- load of varied dimensional lumber. He calculates that the probabilities of reselling the load for $10,000, $9000, and for $8000 are 0.22, 0.33, and 0.45 respectively. In order to ensure an expected profit of $3000, how much can Mike pay for the load
A company is facing three types of decisions for the purchasing of a seasonal product. The profitprojection may depend on the demand level. The payoffs for the situations are given in the followingtable:DemandDecision High (s1) Medium (s2) Low (s3)d1 60 60 50d2 80 80 30d3 100 70 101. If the prior probabilities are 0.3, 0.3, and 0.4, respectively, what is the recommended decision?Show all the calculations and answer with a decision tree.2. At each preseason sales meeting, the vice president of sales provides a personal opinion regarding potential demand for the product. The prediction of the vice president have alwaysbeen either excellent (E) or very good (G). Posterior probabilities are as follows.P(V)=0.7; P(E)=0.3P(s1|E)=0.34; P(s1|V)=0.2P(s2|E)=0.32; P(s2|V)=0.26;Use a decision tree to give the optimal decision strategy.43. Give the EVPI and the EOL, and EVSI.4. Suppose that the prior probability of a low demand is always fixed to 0.4, give a sensitivityanalysis on the other…
You and two other people are to place bids for an object, with the high bid winning. If you win, you plan to sell the object immediately for 10,000.(a) How much should you bid to maximize your expected profit if you believe that the bids of the others can be regarded as being independent and uniformly distributed between 7,000 and 10,000?
Use the following two tables to answer questions a. - e. a. Which of the above securities cannot lie on the efficient frontier? b. Why might you nonetheless include it in your portfolio? c. What is the expected return for a portfolio comprised of 40% security B and 60% security C? d. What is the standard deviation for a portfolio comprised of 40% security B and 60% security C? e. Suppose a risk-free asset with a yield of 3% exists, but only for lending. Would the highly risk-averse investor's optimal portfolio be likely to contain asset C? Why or why not?
Hemmingway, Inc., is considering a $5 million research and development (R&D) project. Profit projections appear promising, but Hemmingway's president is concerned because the probability that the R&D project will be successful is only 0.50. Furthermore, the president knows that even if the project is successful, it will require that the company build a new production facility at a cost of $20 million in order to manufacture the product. If the facility is built, uncertainty remains about the demand and thus uncertainty about the profit that will be realized. Another option is that if the R&D project is successful, the company could sell the rights to the product for an estimated $25 million. Under this option, the company would not build the $20 million production facility. The decision tree is shown in Figure 4.16. The profit projection for each outcome is shown at the end of the branches. For example, the revenue projection for the high demand outcome is $59 million.…
You and two other people are to place bids for an object, with the high bid winning. If you win, you plan to sell the object immediately for 10,000. How much should you bid to maximize your expected profit if you believe that the bids of the others can be regarded as identical and uniformly distributed between 7,000 and 10,000?
Suppose that a life insurance company insures 1 million 50-year-old people in a given year. (Assume a death rate of 5 per 1000 people.) The cost of the premium is $200 per year, and the death benefit is $50,000 What is the expected profit or loss for the insurance company?
There is some evidence that, in the years 1981-85, a simple name change resulted in a short-term increase in the price of certain business firms' stocks (relative to the prices of similar stocks). (See D. Horsky and P. Swyngedouw, "Does it pay to change your company's name? A stock market perspective," Marketing Science v.6, pp. 320-35,1987.) Suppose that, to test the profitability of name changes in the more recent market (the past five years), we analyze the stock prices of a large sample of corporations shortly after they changed names, and we find that the mean relative increase in stock price was about 0.87 %, with a standard deviation of 16 %. Suppose that this mean and standard deviation apply to the population of all companies that changed names during the past five years. Complete the following statements about the distribution of relative increases in stock price for all companies that changed names during the past five years. (a) According to Chebyshev's theorem, at least…
In a market in which the Arbitrage Pricing Theory (APT) model holds, the expected return is given by E[R].
A company is facing three types of decisions for the purchasing of a seasonal product. The protprojection may depend on the demand level. The payos for the situations are given in the followingtable:DemandDecision High (s1) Medium (s2) Low (s3)d1 60 60 50d2 80 80 30d3 100 70 101. If the prior probabilities are 0.3, 0.3, and 0.4, respectively, what is the recommended decision?Show all the calculations and answer with a decision tree.2. At each preseason sales meeting, the vice president of sales provides a personal opinion re-garding potential demand for the product. The prediction of the vice president have alwaysbeen either excellent (E) or very good (G). Posterior probabilities are as follows.P(V)=0.7; P(E)=0.3P(s1jE)=0.34; P(s1jV)=0.2P(s2jE)=0.32; P(s2jV)=0.26; 1 ) Suppose that the prior probability of low demand is always fixed to 0.4, give a sensitivityanalysis on the other probabilities and give different scenarios with a graphic.
The Dynamax Company is going to introduce one of three new products: a widget, a hummer, or a nimnot. The mar-ket conditions (favorable, stable, or unfavorable) will de-termine the profit or loss the company realizes, as shown in the following payoff table. a. Compute the expected value for each decision andselect the best one.b. Determine how much the firm would be willing to payto a market research firm to gain better informationabout future market conditions.c. Assume that probabilities cannot be assigned to futuremarket conditions, and determine the best decision using the maximax, maximin, minimax regret, and equal likeli-hood criteria. Market ConditionsFavorable Stable UnfavorableProduct 0.2 0.5 0.3Widget $160,000 $90,000 $50,000Hummer 70,000 40.000 20,000Nimnot 45,000 35,000 30.000

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