Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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Chapter 9.3, Problem 4P
Summary Introduction
To determine: How large would be the fixed cost to make the unrestraint option to be the best option.
Introduction: The variation between the present value of the
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The fixed cost of $6 million in the Acme problem is evidently not large enough to make Acme abandon the product at the current time. How large would the fixed cost need to be to make the abandon option the bestoption? Explain how the decision tree, especially the version in Figure 9.5, answers this question easily.
A market research firm has agreed, for a fee, to analyse the demand for the start-up's
product and issue a report predicting whether the new start-up will be a success or a
failure before the venture capitalist can make his investment decision.
a) Assuming the VC is risk-neutral, what is the maximum amount it should
pay for the market research? Assume that the market research's
prediction is correct.
b) What are the risk profiles associated with the venture capitalist's
investment decision when he uses the market research with perfect
predictions? How are these risk profiles compared to the risk profiles
when the venture capitalist does not use the market research? Why?
Wired & Plugged specializes in manufacturing modern electronic components. It also builds equipment that produces the components. The marketing and production directors advised the president about a proposed manufacturing facility in the form of a payoff table as shown.
Decision
Profits($)
Strong Marked
Fair Market
Poor Market
Large-sized facility
Medium-sized facility
Small- sized facility
No facility
450,000
2500,000
350,000
0
220,000
150,000
150,000
0
-310,000
-250,000
-80,000
0
What decision should be made using the LaPlace criterion?
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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