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Just Things

This document contains 4 multi-part business decision making questions. It provides tables of data on investment alternatives, demand probabilities, project outcomes and probabilities, and university criteria. The questions ask to determine the best investment using various decision criteria, develop payoff tables and find the best decision, construct a decision tree to determine if a bid should be made, and rank university offers based on weighted criteria scores.

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Jason Villaverde
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221 views4 pages

Just Things

This document contains 4 multi-part business decision making questions. It provides tables of data on investment alternatives, demand probabilities, project outcomes and probabilities, and university criteria. The questions ask to determine the best investment using various decision criteria, develop payoff tables and find the best decision, construct a decision tree to determine if a bid should be made, and rank university offers based on weighted criteria scores.

Uploaded by

Jason Villaverde
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Name & Surname

hazırlıyom Total Score


…………………………………………….
Number
………………….
…………………………………………….

Department of Management
Class of BUS 564 Advanced Decision Making Midterm Exam

1- Ann Tyler has come into an inheritance from her grandparents. She is attempting to decide among several investment alternatives. The return after 1 year is
primarily dependent on the interest rate during the next year. The rate is currently 7%, and Ann anticipates that it will stay the same or go up or down by at
most two points. The various investment alternatives plus their returns ($10,000s), given the interest rate changes, are shown in the following table:

Determine the best investment, using the following decision criteria.

a. Maximax
b. Maximin
c. Minimax regret
d. Hurwicz (a= .4)
e. Equal likelihood
2- The Palm Garden Greenhouse specializes in raising carnations that are sold to florists. Carnations are sold for $3.00 per dozen;
the cost of growing the carnations and distributing them to the florists is $2.00 per dozen. Any carnations left at the end of the
day are sold to local restaurants and hotels for $0.75 per dozen. The estimated cost of customer ill will if demand is not met is
$1.00 per dozen. The expected daily demand (in dozens) for the carnations is as follows:

Daily Demand Probability

20 0.05

22 0.10

24 0.25

26 0.30

28 0.20

30 0.10

1.00

a) Develop the payoff table for this decision situation.


b) Compute the expected value of each alternative number of (dozens of) carnations that could be stocked and select the best decision.
c) Construct the opportunity loss table and determine the best decision.
d) Compute the expected value of perfect information.
3- The Americo Oil Company is considering making a bid for a shale oil development contract to be awarded by the federal government. The company has
decided to bid $110 million. The company estimates that it has a 60% chance of winning the contract with this bid. If the firm wins the contract, it can choose
one of three methods for getting the oil from the shale. It can develop a new method for oil extraction, use an existing (inefficient) process, or subcontract
the processing to a number of smaller companies once the shale has been excavated. The results from these alternatives are as follows:

Develop new process: Use present process:

Outcomes Probabil Profit


ity ($1,000,000s)

Great success .30 $ 600

Moderate success .60 300

Failure .10 -100

Subcontract:

Outcome Probabilit Profit


y ($1,000,000s)

Moderate success 1.00 250

The cost of preparing the contract proposal is $2 million. If the company does not make a bid, it will invest in an alternative venture with a guaranteed profit
of $30 million. Construct a sequential decision tree for this decision situation and determine whether the company should make a bid.
4- Following an all-star school soccer career, Kelly Williams has been offered scholarships to five universities. She has had a difficult time making a decision and
has decided to use a scoring model to help evaluate the different offers. The following table includes a weighted list of criteria she has developed and a grade
showing how well each school satisfies the criteria:

Rank the universities according to their scores to assist Kelly in making her decision.

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