Jay Seago is suing the manufacturer of his car for $3.5 million because of a defect that he believes caused him to have an accident. The accident kept him out of work for a year. The company has offered him a settlement of $700,000, of which Jay would receive $600,000 after attorneys’ fees. His attorney has advised him that he has a 50% chance of winning his case. If he loses, he will incur attorneys’ fees and court costs of $75,000. If he wins, he is not guaranteed his full requested settlement. His attorney believes that there is a 50% chance he could receive the full settlement, in which case Jay would realize $2 million after his attorney takes her cut, and a 50% chance that the jury will award him a lesser amount of $1 million, of which Jay would get $500,000. Using decision tree analysis, decide whether Jay should proceed with his lawsuit against the manufacturer.
Jay Seago is suing the manufacturer of his car for $3.5 million because of a defect that he believes caused him to have an accident. The accident kept him out of work for a year. The company has offered him a settlement of $700,000, of which Jay would receive $600,000 after attorneys’ fees. His attorney has advised him that he has a 50% chance of winning his case. If he loses, he will incur attorneys’ fees and court costs of $75,000. If he wins, he is not guaranteed his full requested settlement. His attorney believes that there is a 50% chance he could receive the full settlement, in which case Jay would realize $2 million after his attorney takes her cut, and a 50% chance that the jury will award him a lesser amount of $1 million, of which Jay would get $500,000. Using decision tree analysis, decide whether Jay should proceed with his lawsuit against the manufacturer.
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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- Jay Seago is suing the manufacturer of his car for $3.5 million because of a defect
that he believes caused him to have an accident. The accident kept him out of work
for a year. The company has offered him a settlement of $700,000, of which Jay would
receive $600,000 after attorneys’ fees. His attorney has advised him that he has a
50% chance of winning his case. If he loses, he will incur attorneys’ fees and court
costs of $75,000. If he wins, he is not guaranteed his full requested settlement. His
attorney believes that there is a 50% chance he could receive the full settlement, in
which case Jay would realize $2 million after his attorney takes her cut, and a 50%
chance that the jury will award him a lesser amount of $1 million, of which Jay would
get $500,000. Using decision tree analysis, decide whether Jay should proceed with
his lawsuit against the manufacturer.
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