St. John's Brewery (SJB) is getting ready for a busy tourist season. SJB wants to either increase production or produce the same amount as last year, depending on the demand level for the coming season. SJB estimates the probabilities for high, medium and low demands as 0.2, 0.3, and 0.5 respectively, on the basis of the number of tourists forecasted by the local recreational bureau. If SJB increases production, the expected profits corresponding to high, medium and low demands are $750,000, $325,000 and $100,000 respectively. If SJB does not increase production, the expected profits are $450,000, $325,000 and $150,000 respectively. (NOTE: Text answers are case sensitive and the value of different parts of this question is indicated in square brackets [*/*]) Construct a decision tree for SJB. On the basis of the EV, what should SJB do? What is the expected value of increasing production? What is the expected value of not increasing production? Should SJB increase production (enter either 'Yes' or 'No')

St. John's Brewery (SJB) is getting ready for a busy tourist season. SJB wants to either increase production or produce the same amount as last year, depending on the demand level for the coming season. SJB estimates the probabilities for high, medium and low demands as 0.2, 0.3, and 0.5 respectively, on the basis of the number of tourists forecasted by the local recreational bureau. If SJB increases production, the expected profits corresponding to high, medium and low demands are $750,000, $325,000 and $100,000 respectively. If SJB does not increase production, the expected profits are $450,000, $325,000 and $150,000 respectively. (NOTE: Text answers are case sensitive and the value of different parts of this question is indicated in square brackets [/]) Construct a decision tree for SJB. On the basis of the EV, what should SJB do? What is the expected value of increasing production? What is the expected value of not increasing production? Should SJB increase production (enter either 'Yes' or 'No')

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

The owner of a ski resort is considering installing a new ski lift that will cost $850,000. Expenses for operating and maintaining the lift are estimated to be $2,000 per day when operating. The U.S.Weather Service estimates that there is a 55% probability of 90 days of skiing weather per year, a 30% probability of 100 days per year, and a 15% probability of 120 days per year. The operators of the resort estimate that during the first 90 days of adequate snow in a season, an average of 550 people will use the lift each day, at a fee of $10 each. If 10 additional days are available, the lift will be used by only 450 people per day during the extra period; and if 20 more days of skiing are available, only 250 people per day will use the lift during those days. The study period is eight years; the ski lift will be depreciated by using the MACRS Alternative Depreciation System (ADS); the ADS recovery period is seven years; MARR = 10% per year (after-tax); and the effective income tax rate…
A company estimates that 0.7% of their products will fail after the original warranty period but within 2 years of the purchase, with a replacement cost of $400. If they offer a 2 year extended warranty for $35, what is the company's expected value of each warranty sold?
The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows: Procurement Cost($) 10 $ 11 12 Probability 0.25 0.45 0.30 Labor Cost ($) 20 22 24 25 Probability 0.10 0.25 0.35 0.30 Transportation Cost ($) 3 5 (a) Compute profit per unit for the base-case, worst-case, and best-case scenarios. Base Case using most likely costs Profit = $ /unit Worst Case Profit = $ /unit Best Case Profit = $ /unit Probability 0.75 0.25 (b) Construct a simulation model to estimate the mean profit per unit. (Use at least 1,000 trials.) (c) Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios? Simulation will provide ---Select--- of the profit per unit values which can then be used to find ---Select--- ◆ of an unacceptably low…
An estimator () is said to be an unbiased estimator 0 if the expected value of (⑦) is equal to the true parameter, If the bias of the expected value of (6) equals to zero. ○ True ○ False
Nike Store at Lee Plaza in Dumaguete City wants to know the optimal price of one of their Clarkson shoe model, taking into account the purchases of socks and insoles. The current price of the Clarkson shoes is P4,499.50 per pair, the related annual sales of which is 24 pairs. The cost of the shoes is estimated at P3,450.00. The elasticity of demand for the shoes is estimated at -2.9 and assumed to be constant within a relevant price range. Every purchase of a pair of the Clarkson model leads to an average of 2 pairs of socks and 1 pair of insole being sold. The socks and insoles contribute P95, and P70, respectively. What is the expected profit from the complementary products? (Note: Ignore currency symbol and comma. Round your answer to the nearest ones.)
Fethe's Funny Hats is considering selling trademarked, orange-haired curly wigs for University of Tennessee football games. The purchase cost for a 2-year franchise to sell the wigs is $20,000. If demand is good (40% probability), then the net cash flows will be $27,000 per year for 2 years. If demand is bad (60% probability), then the net cash flows will be $9,000 per year for 2 years. Fethe's cost of capital is 14%. A. What is the expected NPV of the project? B. Use decision-tree analysis to calculate the expected NPV of this project, including the option to continue for an additional 2 years. B. Use decision-tree analysis to calculate the expected NPV of this project, including the option to continue for an additional 2 years.