Spreadsheet Modeling & Decision Analysis: A Practical Introduction To Business Analytics, Loose-leaf Version
8th Edition
ISBN: 9781337274852
Author: Ragsdale, Cliff
Publisher: South-Western College Pub
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A retailer must decide whether to build a small or a large facility at a new location. Demand at the location can be either low or high, with probabilities estimated to be 0.4 and 0.6, respectively. If a small facility is built and demand proves to be high, the manager may choose not to expand (payoff = $223,000) or to expand (payoff = $270,000). If a small facility is built and demand is low, there is no reason to expand and the payoff is $200,000. If a large facility is built and demand proves to be low, the choice is to do nothing ($40,000) or to stimulate demand through local advertising. The response to advertising may be either modest or sizable, with their probabilities estimated to be 0.3 and 0.7, respectively. If it is modest, the payoff is estimated to be only $20,000; the payoff grows to $220,000 if the response is sizable. Finally, if a large facility is built and demand turns out to be high, the payoff is $800,000.Draw a decision tree. Then analyze it to determine the…
Donald Harris received a windfall and needs to invest it for tax reasons. He went to his brother-in-law, Joe Harris, who is a financial advisor. Joe prepared a matrix that illustrated the possible returns on investment for different investment strategies under different economic conditions. That matrix is given below. Donald Harris reads the Wall Drive Journal and came across an article that stated that the probability that there would be a major downturn would be 10%; the probability of a downturn would be 30%; the probability of an upturn would be 40%; and that the probability of a major upturn would be 20%. Based on these numbers, what investment strategy should Donald Harris adopt?
Future Air Traffic
Strategies
Major Downturn
Downturn
Upturn
Major Upturn
Contrarian
20%
10%
5%
-15%
Risk Averse
2%
4%
7%
10%
Growth
-10%
-8%
13%
20%
Aggressive
-25%
-20%
11%
35%
Group of answer choices
A store owner must decide whether to build a small or a large facility at a new location. Demand at a location can be either small or large, which probabilities estimated to be 0.4 and 0.6, respectively. If small facility is built and demand proves to be high, the manager may choose not to expand (payoff=P235,000) or to expand (payoff=P275,000). If a small facility is built and demand is low, there is no reason to expand and the payoff is P220,000. If a large facility is built and demand proves to be low, the choice is to do nothing (P60,000) or to stimulate demand through local advertising. The response to advertising may be either modest or sizable, with their probabilities estimated to be 0.3 and 0.7, respectively. If it is modest, the payoff grows to P230,000 if the response is sizable. Finally, if a large facility is built and demand turns out to be high, the payoff is P900,000.a.) Draw a decision tree.b.) Determine the expected payoff for each decision and event node.c.)…
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