Name
& Surname
hazırlıyom
Total Score
…………………………………………….
Number
………………….
…………………………………………….
Department of Management
Class of BUS 564 Advanced Decision Making Midterm Exam
1-
Ann Tyler has come into an inheritance from her grandparents. She is attempting to decide among several investment alternatives. The return after 1 year is
primarily dependent on the interest rate during the next year. The rate is currently 7%, and Ann anticipates that it will stay the same or go up or down by at
most two points. The various investment alternatives plus their returns ($10,000s), given the interest rate changes, are shown in the following table:
Interest Rate
Investments
5%
6%
7%
8%
9%
Money market fund
2
3.1
4
4.3
5
Stock growth fund
-3
-2
2.5
4
6
Bond fund
6
5
3
3
2
Government fund
4
3.6
3.2
3
2.8
Risk fund
-9
-4.5
1.2
8.3
14.7
Savings bonds
3
3
3.2
3.4
3.5
Determine the best investment, using the following decision criteria.
a.
b.
c.
d.
e.
Maximax
Maximin
Minimax regret
Hurwicz (a= .4)
Equal likelihood
2-
The Palm Garden Greenhouse specializes in raising carnations that are sold to florists. Carnations are sold for $3.00 per dozen; the cost of growing the
carnations and distributing them to the florists is $2.00 per dozen. Any carnations left at the end of the day are sold to local restaurants and hotels for $0.75
per dozen. The estimated cost of customer ill will if demand is not met is $1.00 per dozen. The expected daily demand (in dozens) for the carnations is as
follows:
Daily Demand
Probability
20
0.05
22
0.10
24
0.25
26
0.30
28
0.20
30
0.10
1.00
a)
b)
c)
d)
Develop the payoff table for this decision situation.
Compute the expected value of each alternative number of (dozens of) carnations that could be stocked and select the best decision.
Construct the opportunity loss table and determine the best decision.
Compute the expected value of perfect information.
3-
The Americo Oil Company is considering making a bid for a shale oil development contract to be awarded by the federal government. The company has
decided to bid $110 million. The company estimates that it has a 60% chance of winning the contract with this bid. If the firm wins the contract, it can
choose one of three methods for getting the oil from the shale. It can develop a new method for oil extraction, use an existing (inefficient) process, or
subcontract the processing to a number of smaller companies once the shale has been excavated. The results from these alternatives are as follows:
Develop new process:
Outcomes
Use present process:
Probability Profit ($1,000,000s)
Outcomes
Probability Profit ($1,000,000s)
Great success
.30
$ 600
Great success
.50
$ 300
Moderate success
.60
300
Moderate success
.30
200
Failure
.10
-100
Failure
.20
-40
Subcontract:
Outcome
Moderate success
Probability
Profit
($1,000,000s)
1.00
250
The cost of preparing the contract proposal is $2 million. If the company does not make a bid, it will invest in an alternative venture with a guaranteed profit
of $30 million. Construct a sequential decision tree for this decision situation and determine whether the company should make a bid.
4-
Following an all-star school soccer career, Kelly Williams has been offered scholarships to five universities. She has had a difficult time making a decision and
has decided to use a scoring model to help evaluate the different offers. The following table includes a weighted list of criteria she has developed and a
grade showing how well each school satisfies the criteria:
University
Decision Criterion
Weight
Tech
State
A&M
Central Western
Playing time
0.29
61
52
93
83
77
Coach
0.20
87
92
66
55
80
Conference affiliation
0.17
42
57
80
92
63
School prestige
0.13
98
72
65
81
83
Program status
0.08
78
82
59
62
75
Degree program/major
0.08
72
80
75
93
89
Dollar value of scholarship
0.05
93
88
75
82
74
Rank the universities according to their scores to assist Kelly in making her decision.