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Draw a decision tree for the above decision situation. Show each decision point and each chance event. Insert all probability values and financial data and make a thorough advisory statement to the company.

Draw a decision tree for the above decision situation. Show each decision point and each chance event. Insert all probability values and financial data and make a thorough advisory statement to the company.

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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b. A company is trying to decide whether to bid for a certain contract or not. They estimate that merely preparing the bid will cost R10 000. If their company bid then they estimate that there is a 50% chance that their bid will be put on the "short-list", otherwise their bid will be rejected. Once "short-listed" the company will have to supply further detailed information (entailing costs estimated at R5 000). After this stage their bid will either be accepted or rejected. The company estimates that the labour and material costs associated with the contract are R127 000. They are considering three possible bid prices, namely R155 000, R170 000 and R190 000. They estimate that the probability of these bids being accepted (once they have been short-listed) is 0.90, 0.75 and 0.35 respectively. The immediate question facing the company is whether or not to prepare a bid. Draw a decision tree for the above decision situation. Show each decision point and each chance event. Insert all probability values and financial data and make a thorough advisory statement to the company.
Transcribed Image Text:b. A company is trying to decide whether to bid for a certain contract or not. They estimate that merely preparing the bid will cost R10 000. If their company bid then they estimate that there is a 50% chance that their bid will be put on the "short-list", otherwise their bid will be rejected. Once "short-listed" the company will have to supply further detailed information (entailing costs estimated at R5 000). After this stage their bid will either be accepted or rejected. The company estimates that the labour and material costs associated with the contract are R127 000. They are considering three possible bid prices, namely R155 000, R170 000 and R190 000. They estimate that the probability of these bids being accepted (once they have been short-listed) is 0.90, 0.75 and 0.35 respectively. The immediate question facing the company is whether or not to prepare a bid. Draw a decision tree for the above decision situation. Show each decision point and each chance event. Insert all probability values and financial data and make a thorough advisory statement to the company.
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