Howard Weiss, Inc., is considering building a sensitive new radiation scanning device. His managers believe that there is a probability of .35 that the ATR Co. will come out with a competitive product. If Weiss adds an assembly line for the product and ATR Co. does not follow with a competitive product, Weiss's expected profit is $40,000 ; if Weiss adds an assembly line and ATR follows suit, Weiss still expects $20,000 profit. If Weiss adds a new plant addition and ATR does not produce a competitive product, Weiss expects a profit of $600,000 ; if ATR does compete for this market, Weiss expects a loss of $120,000. Part 2 a) Expected value for the option = $ b)Expected value for the build new plant option = c) The alternative that provides Weiss the greatest expected monetary return (EMV) is= d) The expected value of perfect information (EVP) for Weiss =

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

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Howard Weiss, Inc., is considering building a sensitive new radiation scanning device. His managers believe that there is a
probability of .35 that the ATR Co. will come out with a competitive product. If Weiss adds an assembly line for the product and ATR Co. does not follow with a competitive product, Weiss's expected profit is $40,000 ; if Weiss adds an assembly line and ATR follows suit, Weiss still expects $20,000 profit. If Weiss adds a new plant addition and ATR does not produce a competitive product, Weiss expects a profit of $600,000 ; if ATR does compete for this market, Weiss expects a loss of $120,000.
Part 2
a) Expected value for the option = $ b)Expected value for the build new plant option = c) The alternative that provides Weiss the greatest expected monetary return (EMV) is= d) The expected value of perfect information (EVP) for Weiss =

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Given data:

$T h e P r o b a b i l i t y t h a t A T R c o m p e t e s w i t h a s s e m b l y l i n e = 0.35, p a y o f f = $ 20, 000$

$P r o b a b i l i t y t h a t A T R d o e s n t c o m p e t e = (1 - 0.35) = 0.65, p a y o f f = $ 40, 000$

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