EBK PRACTICAL MANAGEMENT SCIENCE
5th Edition
ISBN: 9780100655065
Author: ALBRIGHT
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
Chapter 2.7, Problem 19P
Summary Introduction
To calculate: The
Time value of money (TVM):
It states that the money available at a particular period will be worth more than the identical sum in future due to the potential earning capacity of the money. It is sometimes also referred to as the present discounted value.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Cachora Dynamics Corp (CDC) has designed a new integrated circuit that will allow it to enter, if it wishes, the microcomputer field. Otherwise, it can sell its rights for $15 million. If it chooses to build computers, the profitability of this project depends on the company's ability to market them during the first year. Two levels of sales are foreseen as two possible outcomes: selling 10,000 computers in case of low demand, but if it is successful it can sell up to 100,000 units (high demand). The cost of installing the production line is $6 million. The difference between the selling price and the variable cost of each computer is $600.
a) Develop a formulation for decision analysis and use the non-probabilistic decision rules: Maximin and Minimax.
b) Assume that the probability of high demand (p) is 50% and for low demand (1 - p) is 50%, apply the probabilistic criteria: Maximum expected value, Minimum loss of opportunity.
c) Determine the VEIP.
d) Carry out a sensitivity…
Scenario One: An 86-year widow comes in monthly to have her blood drawn and monitored ever since her heart attack 2 years ago. Her husband has recently passed away and she has no family nearby to help her. She has Medicare but does not have supplemental insurance to cover office visits. When leaving the office today, she starts to cry and tell you that she can no longer afford her blood pressure medications, cholesterol medications, blood work, and office visits each month. She will not be able to get her medications refilled unless she sees the doctor and has blood work each month. She currently owes $180 on her account today.
Scenario 2: A 19-year-old mother of 3 children, all under the age of 5, brings in all of the kids today for their recommended check-ups and vaccinations. She does not have insurance for any of the children as she was denied Medicaid based on a previous fraud. She has been diligent paying for the children’s healthcare, with assistance from a grandmother, but she…
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…
Chapter 2 Solutions
EBK PRACTICAL MANAGEMENT SCIENCE
Ch. 2.4 - Prob. 1PCh. 2.4 - Prob. 2PCh. 2.4 - Prob. 3PCh. 2.4 - Prob. 4PCh. 2.5 - Prob. 5PCh. 2.5 - Prob. 6PCh. 2.5 - Prob. 7PCh. 2.5 - Prob. 8PCh. 2.5 - Prob. 9PCh. 2.6 - Prob. 10P
Ch. 2.6 - Prob. 11PCh. 2.6 - Prob. 12PCh. 2.6 - Prob. 13PCh. 2.7 - Prob. 14PCh. 2.7 - Prob. 15PCh. 2.7 - Prob. 16PCh. 2.7 - Prob. 17PCh. 2.7 - Prob. 18PCh. 2.7 - Prob. 19PCh. 2 - Julie James is opening a lemonade stand. She...Ch. 2 - Prob. 21PCh. 2 - Prob. 22PCh. 2 - Prob. 23PCh. 2 - Prob. 24PCh. 2 - Prob. 25PCh. 2 - The file P02_26.xlsx lists sales (in millions of...Ch. 2 - Prob. 27PCh. 2 - The file P02_28.xlsx gives the annual sales for...Ch. 2 - Prob. 29PCh. 2 - Prob. 30PCh. 2 - Prob. 31PCh. 2 - Prob. 32PCh. 2 - Assume the demand for a companys drug Wozac during...Ch. 2 - Prob. 34PCh. 2 - Prob. 35PCh. 2 - Prob. 36PCh. 2 - Prob. 37PCh. 2 - Suppose you are borrowing 25,000 and making...Ch. 2 - You are thinking of starting Peaco, which will...Ch. 2 - Prob. 40PCh. 2 - The file P02_41.xlsx contains the cumulative...Ch. 2 - Prob. 42PCh. 2 - Prob. 43PCh. 2 - The IRR is the discount rate r that makes a...Ch. 2 - A project does not necessarily have a unique IRR....Ch. 2 - Prob. 46PCh. 2 - Prob. 1CCh. 2 - The eTech Company is a fairly recent entry in the...
Knowledge Booster
Similar questions
- It is the beginning of September and you have been offered the following deal to go heli-skiing. If you pick the first week in January and pay for your vacation now, you can get a week of heli-skiing for $1500. However, if you cannot ski because the helicopters cannot fly due to bad weather, there is no snow, or you get sick, you do not get a refund. There is a 25% probability that you will not be able to ski. If you wait until the last minute and go only if you know that the conditions are perfect and you are well, the vacation will cost $4000. You estimate that the pleasure you get from heli-skiing is worth $6300 per week to you (if you had to pay any more than that, you would choose not to go). If your cost of capital is 12% per year, should you book ahead or wait and why? (A decision tree is needed in the answer)arrow_forwardJohnson Chemicals is considering two options for itssupplier portfolio. Option I uses two local suppliers. Each hasa " unique-event" risk of 5%, and the probability of a " superevent"that would disable both at the same time is estimated to be1.5%. Option 2 uses two suppliers located in different countries.Each has a "unique-event" risk of 13%, and the probability of a"super-event" that would disable both at the same time is estimatedto be 0.2%.a) What is the probability that both suppliers will be disrupted using option I?b) What is the probability that both suppliers will be disrupted using option 2?c) Which option would provide the lowest risk of a total shutdown?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
- 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…arrow_forward4. Transrail is bidding on a project that it figures will cost $400,000 to perform. Using a 25% markup, it will charge $500,000, netting a profit of $100,000. However, it has been learned that another company, Rail Freight, is also considering bidding on the project. If Rail Freight does submit a bid, it figures to be a bid about $470,000. Transrail really wants this project and is considering a bid with only a 15% markup to $460,000 to ensure winning regardless of whether or not Rail Freight submits a bid. a. Prepare a profit payoff table from Transrail’s point of view. (6 points) b. For this payoff table find Transrail’s optimal decision using (1) the pessimistic approach, (2) the optimistic approach, and (3) minimax regret approach. (10 points) c. If Rail Freight is known to submit bids on only 25% of the projects it considers, what decision should Transrail make? (5 points) d. Given the information in (c), what is EVPI? (5 points)arrow_forwardThis is the same payoff table used in questions 2 and 3. Below is a payoff table that lists four mortgage options: Decision 1-year ARM 3-year ARM 5-year Arm 30-year fixed Rates Rise $66,645 $62,857 $55,895 $52,276 Outcomes Rates Stable $43,650 $47,698 $50,894 $52,276 4) Which of the following decisions has the best average payoff? CA. 3-year ARM B. 1-year ARM CC. 5-year ARM CD. 30-year Fixed Rates Fall $38,560 $42,726 $48,134 $52,276arrow_forward
- Answer the given question with a proper explanation and step-by-step solution. how can i solve this question??arrow_forwardA company is planning on launching a new product. It was thinking of launching in June of next year, but it believes that a rival is also considering launching a similar product around that time. The company is considering bringing the launch forward to the end of this year. This will cost an extra $3M to carry out and the company believes it will have a 0.8 probability of beating the rival to the market. If, however, they wait until June, the probability of beating the rival falls to 0.2. To make the decision easier, the company assumes that sales will be either high, medium or low. If the company launches before its rival, the probability of high sales is 0.6, the probability of medium sales is 0.25, and the probability of low sales is 0.15. If it launches after its rival, the probability of high sales falls to 0.35, medium sales rises to 0.45, and low sales rises to 0.2. The financial impacts are that high sales would be worth $9M, medium would be worth $5M and low, $1M. Using…arrow_forwardA 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_forward
- Timothy is retiring from his job soon at which time his employer will make the following offer: 1. A lumpsum amount of $200,000 2. A sum of $15,000 at the beginning of each year for the next 25 years. If the average interest rate is likely to be 5.5% p.a. for the next 25 years, which option should Timothy choose?arrow_forwardJohnson Chemicals is considering two options for its supplier portfolio. Option 1 uses two local suppliers. Each has a "unique-event" risk of 5.8%, and the probability of a "super-event" that would disable both at the same time is estimated to be 1.4%. Option 2 uses two suppliers located in different countries. Each has a "unique-event" risk of 11%, and the probability of a "super-event" that would disable both at the same time is estimated to be 0.18%. a) The probability that both suppliers will be disrupted using option 1 is 0.01731 (round your response to five decimal places). b) The probability that both suppliers will be disrupted using option 2 is 0.0121 (round your response to five decimal places).arrow_forwardA global economist hired by Telecomp, the U.S.-basedcomputer manufacturer in Problem S1-1, estimates that the probability that the economic and political climate over-seas and in Mexico will decline during the next five years is 0.30, the probability that it will remain approximatelythe same is 0.40, and the probability that it will improve is 0.30. Determine the best country to construct the new facil-ity in and the expected value of perfect information.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,