Practical Management Science
6th Edition
ISBN: 9781337671989
Author: WINSTON
Publisher: Cengage
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Question
Chapter 9.2, Problem 2P
a)
Summary Introduction
To provide: A brief explanation of the result for given information.
Introduction: The variation between the present value of the
b)
Summary Introduction
To provide: A brief explanation of the result for given information.
Introduction: The variation between the present value of the cash outflows and the present value of the cash inflows are known as the Net Present Value (NPV).
c)
Summary Introduction
To provide: A brief explanation of the result for given information.
Introduction: The variation between the present value of the cash outflows and the present value of the cash inflows are known as the Net Present Value (NPV).
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Q1. A builder has located a piece of property that she would like to but and eventually build on. The land is currently zoned for four homes per acre, but she is planning to request new zoning. What she builds depends on approval of zoning requests and your analysis of this problem to advise her. With her input and your help, the decision process has been reduced to the following costs, alternatives, and probabilities
Cost of land $2 MillionProbability of rezoning .6If the land is rezoned, there will be additional costs for new roads, lighting, and so on of $1 million.
If the land is rezoned, the contractor must decide whether to build a shopping center or 1,500 apartments that the tentative plan shows would be possible. If she builds a shopping center, there is a 70% chance that she can sell the shopping center to a large department store chin for $4 million over her construction cost, which excludes the land; and there is a 30% chance that she can…
Given the following conditional value table:
States of Nature
Very Favorable
Average
Unfavorable
Alternatives
Market
Market
Market
Build new plant
$250,000
$270,000
$180,000
$185,000
$50,000
$0
- $200,000
- $220,000
Subcontract
$100,000
$0
Overtime
- $12,000
Do Nothing
$0
a) Using the decision making under uncertainty with the criterion of Maximax
The appropriate decision will be
The value of the return under this decision is $
b) Using the decision making under uncertainty with the criterion of Maximin
The appropriate decision will be
The value of the return under this decision is $
c) Using the decision making under uncertainty with the criterion of Equally Likely
The appropriate decision will be
The value of the return under this decision is $
(enter your answer as a whole number).
Question 2
An oil company must decide whether or not to drill an oil well in a particular area that they already
own. The decision maker (DM) believes that the area could be dry, reasonably good or a bonanza.
See data in the table which shows the gross revenues for the oil well that is found.
Decision
Drill
$0
Abandon
$0
Probability 0.3
Dry (D)
Seismic Results
No structure(N)
Open(0)
Closed (C)
Reasonably
good(G)
$85
$0
0.3
Drilling costs 40M. The company can take a series of seismic soundings at a cost of 12M) to
determine the underlying geological structure. The results will be either "no structure", "open
structure or "closed structure". The reliability of the testing company is as follows that is, this
reflects their historical performance.
Bonanza(B)
Note that if the test result is "no structure" the company can sell the land to a developer for 50 m.
otherwise (for the other results) it can abandon the drilling idea at no benefit to itself.
$200 m
$0
0.4
Dry(d)
0.7
0.2
0.1…
Chapter 9 Solutions
Practical Management Science
Ch. 9.2 - Prob. 1PCh. 9.2 - Prob. 2PCh. 9.2 - Prob. 3PCh. 9.3 - Prob. 4PCh. 9.3 - Prob. 5PCh. 9.3 - Prob. 6PCh. 9.3 - Prob. 7PCh. 9.4 - Explain in some detail how the PrecisionTree...Ch. 9.4 - Prob. 9PCh. 9.4 - Prob. 10P
Ch. 9.5 - Prob. 11PCh. 9.5 - Prob. 12PCh. 9.5 - Prob. 13PCh. 9.5 - Prob. 17PCh. 9.5 - Prob. 18PCh. 9.5 - Prob. 19PCh. 9.5 - Prob. 21PCh. 9.5 - The model in Example 9.3 has only two market...Ch. 9.6 - Prob. 26PCh. 9.6 - Prob. 27PCh. 9.6 - Prob. 28PCh. 9 - Prob. 30PCh. 9 - Prob. 31PCh. 9 - Prob. 32PCh. 9 - Prob. 34PCh. 9 - Prob. 36PCh. 9 - Prob. 37PCh. 9 - Prob. 38PCh. 9 - Prob. 39PCh. 9 - Prob. 46PCh. 9 - Prob. 48PCh. 9 - Prob. 53PCh. 9 - Prob. 67PCh. 9 - Prob. 68PCh. 9 - Prob. 69PCh. 9 - Prob. 70PCh. 9 - Prob. 71PCh. 9 - Prob. 72PCh. 9 - Prob. 73PCh. 9 - Prob. 74PCh. 9 - Prob. 75PCh. 9 - Prob. 76PCh. 9 - Prob. 77P
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