Anand Publishing Company received a six-chapter manuscript for a new college textbook. The editor of the college division isfamiliar with the manuscript and estimated a 0.6513 probability that the textbook will be successful. If successful, a profit of$950,000 will be realized. If the company decides to publish the textbook and it is unsuccessful, a loss of $150,000 will occur.Before making the decision to accept or reject the manuscript, the editor is considering sending the manuscript out for review.A review process provides either a favorable (F) or an unfavorable (U) evaluation of the manuscript. Past experience with thereview process suggests probabilities P(F) = 0.7 and P(U) = 0.3 apply. Let s₁ = the textbook is successful, and$₂ = the textbook is unsuccessful. The editor's initial probabilities of s₁ and s₂ will be revised based on whether the review isfavorable or unfavorable. The revised probabilities are as follows:P(S₁IF): = 0.75P(S₂IF): = 0.25P(S₁IU) = 0.421P(s₂|U) = = 0.579(a) Construct a decision tree assuming that the company will first make the decision of whether to send the manuscript outfor review and then the decision to accept or reject the manuscript. (For each blank, enter the probability associatedwith the event.)1ReviewDo Not Review2Favorable30.7Unfavorable0.3AcceptReject456AcceptRejectAcceptReject8Success950000 XFailure-150000 XSuccess950000 XFailure-150000SuccessDo not review, and accept.Always reject.Review, and then accept if favorable or reject if unfavorable.Review, and then always accept.Always accept.950950000 XFailure150000Do not review, and accept.Always reject.Review, and then accept if favorable or reject if unfavorable.Review, and then always accept.Always accept.-150(d) What is the expected value of perfect information (in $)?EVPI =$372563.500X950- 1500(b) Assuming the manuscript review process is free, using the expected value approach, determine the optimal decisionstrategy.950-150(c) If the manuscript review costs $5,000, what is your recommendation?0What does this EVPI suggest for the company?This EVPI suggest a better procedure for assessing the market potential for the textbook may beworthwhile

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Answered: Anand Publishing Company received a…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 25P

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