b. A company is trying to decide whether to bid for a certain contract or not. Theyestimate that merely preparing the bid will cost R10 000. If their company bid thenthey 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 tosupply further detailed information (entailing costs estimated at R5 000). After thisstage their bid will either be accepted or rejected.The company estimates that the labour and material costs associated with thecontract are R127 000. They are considering three possible bid prices, namelyR155 000, R170 000 and R190 000. They estimate that the probability of thesebids being accepted (once they have been short-listed) is 0.90, 0.75 and 0.35respectively. The immediate question facing the company is whether or not toprepare a bid.Draw a decision tree for the above decision situation. Show each decision pointand each chance event. Insert all probability values and financial data and make athorough advisory statement to the company.

Answered: Draw a decision tree for the above…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

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Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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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.