D-1. THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL GOVERNMENT. THE COMPANY HAS DECIDED TO BID $100M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING THE CONTRACT WITH HIS BID. IF THE Co. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR SUBCON THE PROCESSING OUT TO A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS: DEVELOP NEW PROCESS PROBABILITY OUTCOMES GREAT SUCCESS MODERATE SUCCESS PROFIT(M) $600 0.40 0.50 300 FAILURE 0.10 (100) USE PRESENT PROCESS OUTCOMES GREAT SUCCESS MODERATE SUCCESS PROFIT(M) $300 PROBABILITY 0.50 0.40 200 FAILURE 0.10 (40) SUBCONTRACT OUTCOMES PROBABILITY PROFIT(M) MODERATE SUCCESS 1.00 250 THE COST OF PREPARING THE CONTACT PROPOSAL IS $3M. IF THE CO. DOES NOT MAKE A BID, IT WILL INVEST IN AN ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $25M. CONSTRUCT A DECISION TREE FOR THIS SITUATION & DETERMINE WHETHER THE CO SHOULD MAKE A BID. C-2. Determine the best Alternative, if data are COST Low denand (4) High demand (.6) ize expected munetary van $40 Do nothing S40 Overtime $50 Expand Build umall $55 Do nothing1$i0) Burild lorge Low demand [4) High demand (.6) Reduce prices $50 $70
D-1. THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL GOVERNMENT. THE COMPANY HAS DECIDED TO BID $100M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING THE CONTRACT WITH HIS BID. IF THE Co. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR SUBCON THE PROCESSING OUT TO A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS: DEVELOP NEW PROCESS PROBABILITY OUTCOMES GREAT SUCCESS MODERATE SUCCESS PROFIT(M) $600 0.40 0.50 300 FAILURE 0.10 (100) USE PRESENT PROCESS OUTCOMES GREAT SUCCESS MODERATE SUCCESS PROFIT(M) $300 PROBABILITY 0.50 0.40 200 FAILURE 0.10 (40) SUBCONTRACT OUTCOMES PROBABILITY PROFIT(M) MODERATE SUCCESS 1.00 250 THE COST OF PREPARING THE CONTACT PROPOSAL IS $3M. IF THE CO. DOES NOT MAKE A BID, IT WILL INVEST IN AN ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $25M. CONSTRUCT A DECISION TREE FOR THIS SITUATION & DETERMINE WHETHER THE CO SHOULD MAKE A BID. C-2. Determine the best Alternative, if data are COST Low denand (4) High demand (.6) ize expected munetary van $40 Do nothing S40 Overtime $50 Expand Build umall $55 Do nothing1$i0) Burild lorge Low demand [4) High demand (.6) Reduce prices $50 $70
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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Transcribed Image Text:D-1. THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL
GOVERNMENT. THE COMPANY HAS DECIDED TO BID $100M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING
THE CONTRACT WITH HIS BID. IF THE CO. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL
FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR
SUBCON THE PROCESSING OUT TO A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS
FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS:
DEVELOP NEW PROCESS
PROFIT(M)
$600
OUTCOMES
PROBABILITY
GREAT SUCCESS
0.40
MODERATE SUCCESS
0.50
300
FAILURE
0.10
(100)
USE PRESENT PROCESS
PROFIT(M)
$300
OUTCOMES
PROBABILITY
GREAT SUCCESS
0.50
MODERATE SUCCESS
0.40
200
FAILURE
0.10
(40)
SUBCONTRACT
OUTCOMES
PROBABILITY
PROFIT(M)
MODERATE SUCCESS
1.00
250
THE COST OF PREPARING THE CONTACT PROPOSAL IS $3M. IF THE CO. DOES NOT MAKE A BID, IT WILL INVEST IN AN
ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $25M. CONSTRUCT A DECISION TREE FOR THIS SITUATION &
DETERMINE WHETHER THE CO SHOULD MAKE A BID.
C-2. Determine the best Alternative, if data are COST
ize expected monetary vann..
$40
Low dernand (.4)
High demand (.6)
Do nothing+ S40
Overtime
#$50
Expand
Build smal
$55
Do nothing ($io
Build large
Low demand (.4)
High demand (6)
Recuce prices
$50
$70
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