You are given a payoff table: Positive market Negative market Probabililty 0.40 0.60 Alternatives Go 100 150 No Go 200 100 Based on these probabilities, a person would select the option "No Go". However, you have a concern about the accuracy of the probabilities. It can be stated that "No Go" is still the best alternative as long as the probability of option "Go" is at least
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- You now have 10,000, all of which is invested in a sports team. Each year there is a 60% chance that the value of the team will increase by 60% and a 40% chance that the value of the team will decrease by 60%. Estimate the mean and median value of your investment after 50 years. Explain the large difference between the estimated mean and median.A manager is deciding whether to build a small or a large facility. Much depends on the future demand that the facility must serve, and demand may be small or large. The manager knows with certainty the payoffs that will result under each alternative, shown in the following payoff table. The payoffs (in $000) are the present values of future revenues minus costs for each alternative in each event. Possible Future DemandAlternative Low HighSmall facility 200 270Large facility 160 800Do nothing 0 0What is the best choice if future demand will be low?a business owner is planning to strategies his company's growth, he can either buy , rent, or lease a new factory depending on how the business is doing. He was given the following payoff table based on whether the business is doing good or business is slow. Aletnative Business Doing Goood Business Slow Buy 90 -10 Rent 70 40 Lease 60 55 The probability of business doing good is 0.7 and the probability of slow business is 0.3. Using Lapace method, the strategy is: A. Do nothing B. Lease C. Rent D. Buy
- . A business owner is planning to strategize his company's growth. He can either buy, rent, or lease a new factory depending on how the business is doing. He was given the following payoff table based on whether the business is doing good or the business is slow. Alternative Business Doing Good Business is Slow Buy 90 -10 Rent 70 40 Lease 60 55 The probability of business doing good is 0.7 and the probability of slow business is 0.3. Using Laplace's method, the best strategy is: Lease Buy Rent Do nothingThere are two outcomes: a good market and a bad market. , The decision table is presented below. There are four alternatives: do nothing, build a small plant, build a medium-size plant, and build a large plant. PAYOFFS Outcomes Alternatives Good market Bad market Do nothing $0 $0 Small Plant $30,000 ($10,000) Medium Plant $100,000 ($15,000) Large Plant $200,000 ($30,000) So you are to workout the Maximax, the Maximin, the Equally likely the Hurwicz based on a .11 probability and the regret using minimax. In words give the answers to these questions: What are your answers under: Answers Best payoff option for maximax is Common Stock Best payoff option for maximin is doing nothing Best payoff option for equally likely is Common Stock Best payoff option for Hurwicz is doing nothing Put a Bold Box around the word Outcomes Keep the Bad Market amounts in Red Ink Make the type style Ariel and Size 12 in BlackBased on the following payoff table, answer the following: Alternative High Medium Low A 20 20 5 B 25 30 11 C 30 12 13 D 10 12 12 E 50 40 −28 Prior Probability 0.3 0.2 0.5 The Bayes’ decision rule strategy is: Multiple Choice: E. B. C. D. A.
- A retailer must decide whether to build a small or a large facility at a new location. Demand at the location can be either low or high, with probabilities estimated to be 0.4 and 0.6, respectively. If a small facility is built and demand proves to be high, the manager may choose not to expand (payoff = $223,000) or to expand (payoff = $270,000). If a small facility is built and demand is low, there is no reason to expand and the payoff is $200,000. If a large facility is built and demand proves to be low, the choice is to do nothing ($40,000) or to stimulate demand through local advertising. The response to advertising may be either modest or sizable, with their probabilities estimated to be 0.3 and 0.7, respectively. If it is modest, the payoff is estimated to be only $20,000; the payoff grows to $220,000 if the response is sizable. Finally, if a large facility is built and demand turns out to be high, the payoff is $800,000.Draw a decision tree. Then analyze it to determine the…A business owner is planning to strategize his company's growth. He can either buy, rent, or lease a new factory depending on how the business is doing. He was given the following payoff table based on whether the business is doing good or business is slow. Alternative Business Doing Good Business is Slow Buy 90 -10 Rent 70 40 Lease 60 55 The probability of business doing good is 0.7 and the probability of slow business is 0.3. Using Laplace's method, the strategy is:A store owner must decide whether to build a small or a large facility at a new location. Demand at a location can be either small or large, which probabilities estimated to be 0.4 and 0.6, respectively. If small facility is built and demand proves to be high, the manager may choose not to expand (payoff=P235,000) or to expand (payoff=P275,000). If a small facility is built and demand is low, there is no reason to expand and the payoff is P220,000. If a large facility is built and demand proves to be low, the choice is to do nothing (P60,000) or to stimulate demand through local advertising. The response to advertising may be either modest or sizable, with their probabilities estimated to be 0.3 and 0.7, respectively. If it is modest, the payoff grows to P230,000 if the response is sizable. Finally, if a large facility is built and demand turns out to be high, the payoff is P900,000.a.) Draw a decision tree.b.) Determine the expected payoff for each decision and event node.c.)…
- If you want to invest in a project that cost $3.5 million. As we are unsure about the future demand, there is a 40% probability of high demand with a present value for the project $3 million. There is a 25% probability of moderate demand with a present value of $2.5 million. In addition, there is a 35% probability of low demand with a present value is $1.5 million. Draw a decision tree for this problem. What is the expected net present value of the business? Should you invest? Explain. Assume that you can expand the project by investing another $0.6 million after you learn the true future demand state. This would make the present value of the business $3.9 million in the high‐demand state, $3.5 million in the moderate demand state, and $1.80 million in the low demand state. Draw a decision tree to reflect the option to expand. Evaluate the alternatives. What is the net present value of the business if you consider the option to expand? How valuable is the option to expand?A company is planning on launching a new product. It was thinking of launching in June of next year, but it believes that a rival is also considering launching a similar product around that time. The company is considering bringing the launch forward to the end of this year. This will cost an extra $3M to carry out and the company believes it will have a 0.8 probability of beating the rival to the market. If, however, they wait until June, the probability of beating the rival falls to 0.2. To make the decision easier, the company assumes that sales will be either high, medium or low. If the company launches before its rival, the probability of high sales is 0.6, the probability of medium sales is 0.25, and the probability of low sales is 0.15. If it launches after its rival, the probability of high sales falls to 0.35, medium sales rises to 0.45, and low sales rises to 0.2. The financial impacts are that high sales would be worth $9M, medium would be worth $5M and low, $1M. Using…Cachora Dynamics Corp (CDC) has designed a new integrated circuit that will allow it to enter, if it wishes, the microcomputer field. Otherwise, it can sell its rights for $15 million. If it chooses to build computers, the profitability of this project depends on the company's ability to market them during the first year. Two levels of sales are foreseen as two possible outcomes: selling 10,000 computers in case of low demand, but if it is successful it can sell up to 100,000 units (high demand). The cost of installing the production line is $6 million. The difference between the selling price and the variable cost of each computer is $600. a) Develop a formulation for decision analysis and use the non-probabilistic decision rules: Maximin and Minimax. b) Assume that the probability of high demand (p) is 50% and for low demand (1 - p) is 50%, apply the probabilistic criteria: Maximum expected value, Minimum loss of opportunity. c) Determine the VEIP. d) Carry out a sensitivity…