1) A television network earns an average of $1.6 million each season from a hit program and loses an average of $400,000 each season on a program that turns out to be a flop, and of all programs picked up by this network in recent years, 25% turn out to be hits and 75% turn out to be flops. a) Construct a decision tree to help the television network identify the strategy that maximizes its expected profit in responding to a newly proposed television program. Make sure to label all decision and chance nodes and include appropriate costs, payoffs and probabilities. b) What should the network do? What is their expected profit? c) The network can conduct market research to determine whether a program will be a hit or a flop. If the market research report is perfectly reliable, what is the most the network should be willing to pay for it? 2) A buyer for a large sporting goods store chain must place orders for professional footballs with the football manufacturer six months prior to the time the footballs will be sold in the stores. The buyer must decide in November how many footballs to order for sale during the upcoming late summer and fall months. Assume that each football costs the chain $45. Furthermore, assume that each can be sold for a retail price of $90. If the footballs are still on the shelves after next Christmas, they can be discounted and sold for $35 each. The probability distribution of consumer demand for these footballs (in hundreds) during the upcoming season has been assessed by the market research specialists and is presented below. Finally, assume that the sporting goods store chain must purchase the footballs in lots of 100 units. Demand Probability 4 0.30 5 0.50 6 0.20 a) Construct a decision tree to identify the buyer’s course of action that maximizes the expected profit earned by the chain from the purchase and subsequent sale of footballs in the coming year. b) What is the optimal strategy for order quantity, and what is the expected profit in that case? 3) Hartsfield International Airport in Atlanta, Georgia, is one of the busiest airports in the world. The airport has expanded many times to accommodate increasing air traffic. Commercial development around the airport prevents it from building additional runways to handle future air traffic demands. As a solution to this problem, plans are being developed to build another airport outside the city limits. Two possible locations (A & B) for the new airport have been identified, but a final decision on the new location will not be made for another year. The Magnolia Inns hotel chain intends to build a new facility near the new airport once its site is determined. Land values around both possible sites for the new airport are increasing as investors speculate that property values will increase greatly in the vicinity of the new airport. The table below summarizes the current price of each parcel of land, the estimated present value of the future cash flows that a hotel would generate at each site if the airport is ultimately located at the site, and the present value of the amount for which the company believes it can resell each parcel if the airport is not built at the site. The company can buy either site, both sites, or neither site. Magnolia Inns estimates a 40% chance the airport will be built at location A and 60% chance that it will be built at location B. Construct a decision tree and determine what is the optimum strategy for the company. Parcel of Land Near Location A B Current Purchase Price $18 $12 Present value of future cash flows if the hotel and airport $31 $23 are built at this location. Present value of future sales price of parcel if the airport is $6 $4 not build at this location. Please explain how to create a decision tree using Excel.
Critical Path Method
The critical path is the longest succession of tasks that has to be successfully completed to conclude a project entirely. The tasks involved in the sequence are called critical activities, as any task getting delayed will result in the whole project getting delayed. To determine the time duration of a project, the critical path has to be identified. The critical path method or CPM is used by project managers to evaluate the least amount of time required to finish each task with the least amount of delay.
Cost Analysis
The entire idea of cost of production or definition of production cost is applied corresponding or we can say that it is related to investment or money cost. Money cost or investment refers to any money expenditure which the firm or supplier or producer undertakes in purchasing or hiring factor of production or factor services.
Inventory Management
Inventory management is the process or system of handling all the goods that an organization owns. In simpler terms, inventory management deals with how a company orders, stores, and uses its goods.
Project Management
Project Management is all about management and optimum utilization of the resources in the best possible manner to develop the software as per the requirement of the client. Here the Project refers to the development of software to meet the end objective of the client by providing the required product or service within a specified Period of time and ensuring high quality. This can be done by managing all the available resources. In short, it can be defined as an application of knowledge, skills, tools, and techniques to meet the objective of the Project. It is the duty of a Project Manager to achieve the objective of the Project as per the specifications given by the client.
1) A television network earns an average of $1.6 million each season from a hit program and loses an average
of $400,000 each season on a program that turns out to be a flop, and of all programs picked up by this
network in recent years, 25% turn out to be hits and 75% turn out to be flops.
a) Construct a decision tree to help the television network identify the strategy that maximizes its
expected profit in responding to a newly proposed television program. Make sure to label all decision and chance nodes and include appropriate costs, payoffs and probabilities.
b) What should the network do? What is their expected profit?
c) The network can conduct
the market research report is perfectly reliable, what is the most the network should be willing to pay
for it?
2) A buyer for a large sporting goods store chain must place orders for professional footballs with the football
manufacturer six months prior to the time the footballs will be sold in the stores. The buyer must decide
in November how many footballs to order for sale during the upcoming late summer and fall months.
Assume that each football costs the chain $45. Furthermore, assume that each can be sold for a retail price
of $90. If the footballs are still on the shelves after next Christmas, they can be discounted and sold for
$35 each. The probability distribution of consumer demand for these footballs (in hundreds) during the
upcoming season has been assessed by the market research specialists and is presented below. Finally,
assume that the sporting goods store chain must purchase the footballs in lots of 100 units.
Demand Probability
4 0.30
5 0.50
6 0.20
a) Construct a decision tree to identify the buyer’s course of action that maximizes the expected profit
earned by the chain from the purchase and subsequent sale of footballs in the coming year.
b) What is the optimal strategy for order quantity, and what is the expected profit in that case?
3) Hartsfield International Airport in Atlanta, Georgia, is one of the busiest airports in the world. The airport
has expanded many times to accommodate increasing air traffic. Commercial development around the
airport prevents it from building additional runways to handle future air traffic demands. As a solution to
this problem, plans are being developed to build another airport outside the city limits. Two possible
locations (A & B) for the new airport have been identified, but a final decision on the new location will
not be made for another year. The Magnolia Inns hotel chain intends to build a new facility near the new
airport once its site is determined. Land values around both possible sites for the new airport are increasing
as investors speculate that property values will increase greatly in the vicinity of the new airport.
The table below summarizes the current price of each parcel of land, the estimated present value of the
future cash flows that a hotel would generate at each site if the airport is ultimately located at the site, and
the present value of the amount for which the company believes it can resell each parcel if the airport is
not built at the site. The company can buy either site, both sites, or neither site. Magnolia Inns estimates a
40% chance the airport will be built at location A and 60% chance that it will be built at location B.
Construct a decision tree and determine what is the optimum strategy for the company.
Parcel of Land Near Location
A B
Current Purchase Price $18 $12
Present value of future cash
flows if the hotel and airport $31 $23
are built at this location.
Present value of future sales
price of parcel if the airport is $6 $4
not build at this location.
Please explain how to create a decision tree using Excel.
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