Dante Development Corporation is considering bidding on a contract for a new office building complex. The following figure shows the decision tree prepared by one of Dante’s analysts. At node 1, the company must decide whether to bid on the contract. The cost of preparing the bid is $200,000. The upper branch from node 2 shows that the company has a 0.8 probability of winning the contract if it submits a bid. If the company wins the bid, it will have to pay $2 million to become a partner in the project. Node 3 shows that the company will then consider doing a market research study to forecast demand for the office units prior to beginning construction. The cost of this study is $150,000. Node 4 is a chance node showing the possible outcomes of the market research study. Nodes 5, 6, and 7 are similar in that they are the decision nodes for Dante to either build the office complex or sell the rights in the project to another developer. The decision to build the complex will result in an income of $5 million if demand is high and $3 million if demand is moderate. If Dante chooses to sell its rights in the project to another developer, income from the sale is estimated to be $3.5 million. The probabilities shown at nodes 4, 8, and 9 are based on the projected outcomes of the market research study.
a. Verify Dante’s profit projections shown at the ending branches of the decision tree by calculating the payoffs of $2,650,000 and $650,000 for first two outcomes.
b. What is the optimal decision strategy for Dante, and what is the expected profit for this project?
c. What would the cost of the market research study have to be before Dante would change its decision about the market research study? d. Develop a risk profile for Dante.
Case Study – Woodvale Products Limited Karen Rees, director of marketing at Woodvale Products Limited, has called an urgent meeting with her fellow directors of the other...Aug 01 2020
In Section 2.2.2 we used the M/M/1 queuing formula with the mean inter arrival time pA and the mean service time estimated from the data in Table 2-1 as 4.08 and 3.46, r...Aug 05 2020
What four titles along with their classification are involved in the sale of goods in a perpetual system? Journal Entries Use the perpetual inventory system.May 06 2020
What are the sensitivity, specificity, positive predictive value, and negative predictive value in the previous exercise? 6.85 The Pap smear is the standard test for c...Jun 21 2020
The structure shown in Figure1is a combination of threeframes ABC, CDEFG, and NOPQR, as wellasa simple trussGHIJKLMN.The truss is connected to the two frames with hinges ...May 24 2020
Question - 1 It seems as if every manufacturer has adopted a different name for their gradient echo sequences. Why is this? Can you sort this out for me? Question - 2 ...Jul 18 2020
Canandaigua Container Company manufactures recyclable soft-drink cans. A unit of production is a case of 12 dozen cans. The following standards have been set by the produ...May 12 2020
After the collapse of communism in Dehran, successful business owners often had to pay "protection money" to the mafia or face violent retribution. In the context of prop...Jan 11 2020
What is meant by an intervention study as a type of experimental epidemiological study design? Provide at least one relevant example.Feb 05 2020
The stockholders’ equity section on the balance sheet of Dillard’s, a popular department store, is shown below. The company earned net income of $122,726,000 and declared...Apr 09 2020