Operations and Supply Chain Management 9th edition
9th Edition
ISBN: 9781119320975
Author: Roberta S. Russell, Bernard W. Taylor III
Publisher: WILEY
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 1.S, Problem 6P
In Problem S1-5 assume that Nicole, with the help of a financial newsletter and some library research, has been able to assign probabilities to each of the possible interest rates during the next year as follows:
- a. Using expected value, determine her best investment decision.
- b. Nicole is considering hiring a financial analyst to help her determine the best investment. What is the maximum amount she should pay an analyst?
Nicole Nelson has come into an inheritance from her grandparents. She is attempting to decide among several investment alternatives. The return after one year is dependent primarily on the interest rate during the next year. The rate is currently 7%, and she anticipates it will stay the same or go up or down by at most 2 points. The various investment alternatives plus their returns ($10,000s) given the interest rate changes are shown in the following table.
Determine the best investment using the following decision criteria.
- a. Maximax
- b. Maximin
- c. Equal likelihood
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
n September 2012, a 260,000 square foot Costco anchored shopping center was acquired in San Mateo, California for $36 million with a $26 million fully amortizing first mortgage loan from Union Bank. By 2018, the property had substantially appreciated in value and was worth $72 million and the owner wanted to access part or all of the increased equity value while paying little or no current taxes. The owner might:
Refinance the property with a larger loan
All these answers are correct
Sell the property under an installment sale contract
Trade the property for a property whose sale price is more than $54 million under Section 1031 of the Internal Revenue Code
Problem 2: You go to the racetrack and are choosing between 2 horses: Belle and Jeb (you are at the racetrack, so you will bet on one of these two horses). Betting on either horse will cost you $1, and the payoffs are as follows:
• Bet on Belle: you will be paid $2 if she wins (or a net profit of $1). You believe she has a 75% chance of winning.
• Bet on Jeb: you will be paid $9 if he wins (for a net profit of $8). You believe that he has a 20% chance of winning. Prior to making your decision of which horse to bet on, someone comes and offers you gambler’s “insurance.” If you agree to the gamblers “insurance,” they pay you $1 immediately and you agree to pay them 50% of the profit on your winnings (that is, $0.50 if Belle wins, and $4 if Jeb wins).
What should you do? Answer this question by:
a) Creating a decision tree for this scenario, making sure you label all branches and include all probabilities and consequences.
b) Solving the decision tree using EMV and stating the optimal…
Hemmingway, Inc. is considering a $5 million research and development (R&D) project. Profit projections appear promising, but Hemmingway's president is concerned because the probability that the R&D project will be successful is
only 0.50. Furthermore, the president knows that even if the project is successful, it will require that the company build a new production facility at a cost of $20 million in order to manufacture the product. If the facility is built,
uncertainty remains about the demand and thus uncertainty about the profit that will be realized. Another option is that if the R&D project is successful, the company could sell the rights to the product for an estimated $25 million.
Under this option, the company would not build the $20 million production facility.
The decision tree follows. The profit projection for each outcome is shown at the end of the branches. For example, the revenue projection for the high demand outcome is $59 million. However, the cost of the R&D…
Chapter 1 Solutions
Operations and Supply Chain Management 9th edition
Ch. 1.S - Prob. 1PCh. 1.S - Prob. 2PCh. 1.S - Prob. 3PCh. 1.S - Prob. 4PCh. 1.S - Prob. 5PCh. 1.S - In Problem S1-5 assume that Nicole, with the help...Ch. 1.S - Prob. 7PCh. 1.S - Prob. 8PCh. 1.S - Telecomp, a computer manufacturer with a global...Ch. 1.S - Prob. 10P
Ch. 1.S - Prob. 11PCh. 1.S - Prob. 12PCh. 1.S - Prob. 13PCh. 1.S - Prob. 14PCh. 1.S - Prob. 15PCh. 1.S - Prob. 16PCh. 1.S - Prob. 17PCh. 1.S - Prob. 18PCh. 1.S - In Problem S1-18, assume the Weight Club is able...Ch. 1.S - Prob. 20PCh. 1.S - Prob. 21PCh. 1.S - Prob. 22PCh. 1.S - Prob. 23PCh. 1.S - Prob. 24PCh. 1.S - Prob. 25PCh. 1.S - Prob. 26PCh. 1.S - Prob. 27PCh. 1.S - Prob. 28PCh. 1.S - Prob. 29PCh. 1.S - Prob. 30PCh. 1.S - Prob. 31PCh. 1.S - Prob. 33PCh. 1.S - Prob. 34PCh. 1.S - Alex Mason has a wide-curving, uphill driveway...Ch. 1.S - Prob. 36PCh. 1.S - Prob. 39PCh. 1.S - Prob. 40PCh. 1.S - State University has three healthcare plans for...Ch. 1.S - The Orchard Wine Company purchases grapes from one...Ch. 1.S - Prob. 43PCh. 1.S - Prob. 1.1CPCh. 1.S - Prob. 2.1CPCh. 1.S - Evaluating Projects at Nexcom Systems Nexcom...Ch. 1 - Feeding America Each year, the Feeding America...Ch. 1 - Feeding America Each year, the Feeding America...Ch. 1 - Feeding America Each year, the Feeding America...Ch. 1 - Feeding America Each year, the Feeding America...Ch. 1 - Prob. 1QCh. 1 - What constitutes operations at (a) a bank, (b) a...Ch. 1 - Prob. 3QCh. 1 - Prob. 4QCh. 1 - Prob. 5QCh. 1 - Prob. 17QCh. 1 - What is the difference between an order winner and...Ch. 1 - Prob. 21QCh. 1 - Prob. 22QCh. 1 - Prob. 23QCh. 1 - Prob. 24QCh. 1 - Prob. 1PCh. 1 - Prob. 2PCh. 1 - Prob. 3PCh. 1 - Prob. 4PCh. 1 - Prob. 5PCh. 1 - Omar Industries maintains production facilities in...Ch. 1 - Rushing yardage for three Heisman Trophy...Ch. 1 - Carpet City recorded the following data on carpet...Ch. 1 - Prob. 9PCh. 1 - Prob. 10PCh. 1 - Prob. 11PCh. 1 - Prob. 12PCh. 1 - Prob. 13PCh. 1 - Prob. 14PCh. 1 - Prob. 15PCh. 1 - Prob. 1.1CPCh. 1 - Prob. 1.2CPCh. 1 - Prob. 1.3CPCh. 1 - Prob. 1.4CPCh. 1 - Prob. 1.5CPCh. 1 - Prob. 2.1CPCh. 1 - Prob. 2.2CP
Additional Business Textbook Solutions
Find more solutions based on key concepts
What is precedent, and how does it affect common law?
Business in Action
The best fits using exponential smoothing, trend analysis, and linear regression for the given data. Introducti...
Principles of Operations Management: Sustainability and Supply Chain Management (10th Edition)
4. Figure 1.1 outlines the operations, finance/accounting, and marketing functions of three organizations. Prep...
Operations Management: Sustainability and Supply Chain Management (12th Edition)
13. Explain the value of seasonal indices in forecasting. How are seasonal patterns different from cyclical pat...
Operations Management
What is precedent, and how does it affect common law?
Business in Action (8th Edition)
Create an Excel spreadsheet on your own that can make combination forecasts for Problem 18. Create a combinatio...
Operations Management: Processes and Supply Chains (11th Edition)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.Similar questions
- Problem 4-17 Hemmingway, Inc., is considering a $5 million research and development (R&D) project. Profit projections appear promising, but Hemmingway's president is concerned because the probability that the R&D project will be successful is only 0.50. Furthermore, the president knows that even if the project is successful, it will require that the company build a new production facility at a cost of $20 million in order to manufacture the product. If the facility is built, uncertainty remains about the demand and thus uncertainty about the profit that will be realized. Another option is that if the R&D project is successful, the company could sell the rights to the product for an estimated $25 million. Under this option, the company would not build the $20 million production facility. FIGURE 4.16 DECISION TREE FOR HEMMINGWAY, INC. Start R&D Project ($5 million) Do Not Start the R&D Project Successful 0.5 Not Successful 0.5 3 Building Facility ($20 million) Sell Rights Profit ($…arrow_forwardProblem 4-17 Hemmingway, Inc., is considering a $5 million research and development (R&D) project. Profit projections appear promising, but Hemmingway's president is concerned because the probability that the R&D project will be successful is only 0.50. Furthermore, the president knows that even if the project is successful, it will require that the company build a new production facility at a cost of $20 million in order to manufacture the product. If the facility is built, uncertainty remains about the demand and thus uncertainty about the profit that will be realized. Another option is that if the R&D project is successful, the company could sell the rights to the product for an estimated $25 million. Under this option, the company would not build the $20 million production facility. The decision tree is shown in Figure 4.16. The profit projection for each outcome is shown at the end of the branches. For example, the revenue projection for the high demand outcome is…arrow_forward10. An investor must decide between two alternative investments-stocks and bonds. The return for each investment, given two future economic conditions, is shown in the following payoff table: Economic Conditions Investment Good Bad Stocks $10,000 $-4,000 Bonds 7,000 2,000 What probability for each economic condition would make the investor indifferent to the choice between stocks and bonds?arrow_forward
- 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.)…arrow_forward1. The Yellow Cab Pizza wants to launch a new pizza variant next month. After deliberations with their research department, marketing, finance and operations, they have broken down the possible variants into two (2) options: the Neapolitan and Chicago Deep Dish. The table below shows the possible profits (expressed in millions) for each option and the corresponding probabilities: Chicago deep dish Profit (x;) Probability (P,) Neapolitan Profit (x;) Probability (P,) 35 0.15 35 0.20 45 0.30 45 0.35 50 0.35 50 0.30 60 0.20 60 0.15arrow_forwardA manager is deciding whether to build a small or a large facility. Much depends on the future demand that the facility must serve, and demand may be small or large. The manager knows with certainty the payoffs that will result under each alternative, shown in the following payoff table. The payoffs (in $000) are the present values of future revenues minus costs for each alternative in each event. Possible Future DemandAlternative Low HighSmall facility 200 270Large facility 160 800Do nothing 0 0What is the best choice if future demand will be low?arrow_forward
- PROBLEM The Seminole Company wishes to apply the Miller-Orr model to manage its cash investment. Seminole’s management has determined that the cost of either investing in or selling marketable securities is $200. By looking at Seminole Company’s past cash needs, they have determined that the variance of daily cash flows is $10,000. Seminole Company’s opportunity cost of cash, per day, is estimated to be 0.05%. Seminole management has figured, based on their experience dealing with the cash flows of the company, that there should be a cushion— a safety stock—of cash of $20,000. 1. How much is the variance of daily cash flows? (Use a number, no decimal value, no commas, no currency, no space) * 2. How much is the opportunity cost of cash, per day? (Use a number, must be in decimal form. eg. 6.3%/100, encode 0.063 , no commas, no currency, no space) * 3. How much is the cost per transaction? (Use a number, no decimal value, no commas, no currency, no space) * PLEASE ANSWER ALL QUESTIONS.…arrow_forwardA 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…arrow_forwardProblem 1: A government committee is considering the economic benefits of a program of preventative flu vaccinations. We will assume that the flu vaccine is completely effective so if the vaccine is implemented, there will be no flu cases. It is estimated that a vaccination program will cost $9 million and that the probability of flu striking in the next year is 0.70. If vaccinations are not introduced then the estimated cost to the government if flu strikes in the next year is $7 million with probability 0.15, $10 million with probability 0.25 and $15 million with probability 0.6. One alternative open to the committee is to institute an "early-warning" monitoring scheme (costing $3 million) which will enable it to detect an outbreak of flu early and therefore decide whether or not to institute a rush vaccination program (costing $12 million because of the need to vaccinate quickly before the outbreak spreads, again with the vaccine being completely effective) or to do nothing with…arrow_forward
- Cheryl Druehl Retailers, Inc., must decide whether to build a small or a large facility at a new location in Fairfax. Demand at the location will either be low or high, with probabilities 0.6 and 0.4, respectively. If Cheryl builds a small facility and demand proves to be high, she then has the option of expanding the facility. If a small facility is built and demand proves to be high, and then the retailer expands the facility, the payoff is $290,000. If a small facility is built and demand proves to be high, but Cheryl then decides not to expand the facility, the payoff is $253,000. If a small facility is built and demand proves to be low, then there is no option to expand and the payoff is $220,000. If a large facility is built and demand proves to be low, Cheryl then has the option of stimulating demand through local advertising. If she does not exercise this option, then the payoff is $35,000. If she does exercise the advertising option, then the response to advertising will…arrow_forwardCheryl Druehl Retailers, Inc., must decide whether to build a small or a large facility at a new location in Fairfax. Demand at the location will either be low or high, with probabilities 0.3 and 0.7,respectively. If Cheryl builds a small facility and demand proves to be high, she then has the option of expanding the facility. If a small facility is built and demand proves to be high, and then the retailer expands the facility, the payoff is $230,000. If a small facility is built and demand proves to be high, but Cheryl then decides not to expand the facility, the payoff is $203,000. If a small facility is built and demand proves to be low, then there is no option to expand and the payoff is $250,000. If a large facility is built and demand proves to be low, Cheryl then has the option of stimulating demand through local advertising. If she does not exercise this option, then the payoff is $40,000. If she does exercise the advertising option, then the response to…arrow_forwardCheryl Druehl Retailers, Inc., must decide whether to build a small or a large facility at a new location in Fairfax. Demand at the location will either be low or high, with probabilities 0.3 and 0.7, respectively. If Cheryl builds a small facility and demand proves to be high, she then has the option of expanding the facility. If a small facility is built and demand proves to be high, and then the retailer expands the facility, the payoff is $240,000. If a small facility is built and demand proves to be high, but Cheryl then decides not to expand the facility, the payoff is $213,000. If a small facility is built and demand proves to be low, then there is no option to expand and the payoff is $230,000. If a large facility is built and demand proves to be low, Cheryl then has the option of stimulating demand through local advertising. If she does not exercise this option, then the payoff is $60,000. If she does exercise the advertising option, then the response to advertising will…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,
Practical Management Science
Operations Management
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:Cengage,
Inventory Management | Concepts, Examples and Solved Problems; Author: Dr. Bharatendra Rai;https://www.youtube.com/watch?v=2n9NLZTIlz8;License: Standard YouTube License, CC-BY