A decision maker is looking to minimising costs through three alternative decisions a1 , b2 and c3 under two states of nature/events S1 and S2 with S2 having a probability of 30% . For a1 payoffs for s1 K100 million and s2 K540 million For a2 payoff for s1 K150 million and s2 –K50 million For a3 payoff for s1 K350 million and s2 K320 million Find EMV and recommend the course of action Find the EMV under certainty Use the EVC to find the EVPI Determine the opportunity loss table Find the course of action that minimises EOL Compare the minimum EOL with the EVPI.
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- A decision maker is looking to minimising costs through three alternative decisions a1 , b2 and c3 under two states of nature/events S1 and S2 with S2 having a probability of 30% .
For a1 payoffs for s1 K100 million and s2 K540 million
For a2 payoff for s1 K150 million and s2 –K50 million
For a3 payoff for s1 K350 million and s2 K320 million
- Find EMV and recommend the course of action
- Find the EMV under certainty
- Use the EVC to find the EVPI
- Determine the opportunity loss table
- Find the course of action that minimises EOL
- Compare the minimum EOL with the EVPI.
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The company is 95% sure that the growth in the potential market during any year will be between 2.5% and 5.5%. It uses a normal distribution to model this. The company believes its share of the potential market during year 1 will be at worst 30%, most likely 50%, and at best 60%. It uses a triangular distribution to model this. The variable cost of producing a doll during year 1 has a triangular distribution with parameters 15, 17, and 20. The current selling price is 45. Each year, the variable cost of producing the doll will increase by an amount that is triangularly distributed with parameters 2.5%, 3%, and 3.5%. You can assume that once this change is generated, it will be the same for each year. You can also assume that the company will change its selling price by the same percentage each year. The fixed cost of developing the doll (which is incurred right away, at time 0) has a triangular distribution with parameters 5 million, 7.5 million, and 12 million. Right now there is one competitor in the market. During each year that begins with four or fewer competitors, there is a 25% chance that a new competitor will enter the market. Year t sales (for t 1) are determined as follows. Suppose that at the end of year t 1, n competitors are present (including Play Things). Then during year t, a fraction 0.9 0.1n of the company's loyal customers (last year's purchasers) will buy a doll from Play Things this year, and a fraction 0.2 0.04n of customers currently in the market ho did not purchase a doll last year will purchase a doll from Play Things this year. Adding these two provides the mean sales for this year. Then the actual sales this year is normally distributed with this mean and standard deviation equal to 7.5% of the mean. a. Use @RISK to estimate the expected NPV of this project. b. Use the percentiles in @ RISKs output to find an interval such that you are 95% certain that the companys actual NPV will be within this interval.
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