Consider the following table which presents information on the returns in million poundsfrom a range of investment project alternatives for a company depending on the performanceof the economy: the economy may be in a recession, performing at a normal level orbooming.SCENARIORECESSIONNORMALВОOMProject AProject BProject C121828102232112131a) Briefly describe and apply the following decision criteria to select the optimal project:i.Maxi – min rule;ii.Махi- max rule;11.Mini max regret rule.b) Using data provided below, compute appropriate values and fill the table below to helpidentify the least risky and most risky project among alternatives A, B and C usingappropriate criteria.ProjectPEVDD2VarSt. dev Coef.Of Var120.2A180.7280.1100.3В220.6320.1110.1C210.8310.1Where n denotes the profit, P is the probability, EV stand for Expected value, D is theDeviation, D$ denote the deviation square, St. dev is the standard deviation and finallyCoef.of Var is the coefficient of variation.

Note: - Since we can answer only up to three subparts we will answer subparts a(1, 2, and 3) here.…

Answered: Consider the following table which…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section9.2: Elements Of Decision Analysis

Problem 2P

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Suppose you have a choice of three projects to choose from. Here the expected profits from these projects under the following economic scenarios: Project Poor/Fair Moderate/Stable Strong/Booming A -200 $400 $700 B -700 600 1200 C 100 500 900 Now suppose the probability of a Poor/Fair economy is 25%, a Moderate/Stableeconomy is 45% and there is a 30% chance for a Strong/Booming economy.A) Setup a decision tree.B) Determine the expected value (EV) for each project. What project shouldbe selected based on the expected value approach? Why?C) Determine the expected value with perfect information about the states ofnature?D) Determine the expected value without perfect information about the states ofnature?E) Determine the expected value of perfect information.
This 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 $52,276
Maximax, Maximin, Minimax RegretLearning material: Watch this videoLab Scenario:Imagine a local entrepreneur is considering starting a business and has three options: open a coffeeshop, a bookshop, or a fusion coffee-bookshop. The entrepreneur is uncertain about the market'sreaction to these businesses. The possible market conditions are: favorable, neutral, and unfavorable.Data (Payoff Table in USD):Business Option Favorable Market Neutral Market Unfavorable MarketCoffee Shop 150,000 70,000 -30,000Bookshop 100,000 60,000 -20,000Fusion Shop 130,000 80,000 -10,000Positive values represent profits, and negative values represent losses.Assignment Steps:1. Maximax (Optimist's Criterion) Approach:For each business option, identify the maximum possible payoff.First Question What is the business option with the highest of these maximum payoffs? (5points)2. Maximin (Pessimist's Criterion) Approach:For each business option, identify the minimum possible payoff.Second Question What is the…
The following payoff table provides profits based on various possible decision alternatives adn various levels of demand at Robert Klassan's print shop: decision low high alt 1 $10,000 $36,000 alt 2 $6,000 $38,000 alt 3 -$2500 $52,000 The probability of low demand is 0.40 whereas the probability of high demand is 0.60. a) The alternative that provides Robert the greatest expected monetary value is _________ The EMV for this decision is $_______ b) The expected value with perfect information (EVwPI)= $______ c) The expected value of perfect information (EVPI) for Robert= $________
10. An investor must decide between two alternative investments-stocks and bonds. The return for each investment, given two future economic conditions, is shown in the following payoff table: Economic Conditions Investment Good Bad Stocks $10,000 $-4,000 Bonds 7,000 2,000 What probability for each economic condition would make the investor indifferent to the choice between stocks and bonds?
The following payoff table provides profits based on various possible decision alternatives and various levels of demand. ALTERNATIVE DEMAND LOW MEDIUM HIGH Alternative 1 40 80 150 Alternative 2 80 120 130 Alternative 3 100 100 100 a. Which alternative should be chosen using the equally likely decision criterion? b. Set-up the opportunity loss table. c. Which alternative should be chosen using the minimax regret criterion?
Develop the objectives for Boston Properties based on the following Information:  Boston Properties (BP) is owned by 50 employees of Humber Properties. The employees range in age from 52 to 55.The employees have targeted the age of 57 to 60 to retire.  BP provides a modest pension of $20,000. The employees require a retirement income of $70,000. BP must be able to provide $50,000 in retirement income.  Currently BP has cash flows it could pay to the investors in the amount of $40,000 per year.  The employees of BP make $95,000 in income, and expenses are $60,000.  CSB earn 2%, and the stock market earned 10% last year. Outline the objectives for BP. The non-profit that you manage has a new chair. The chair has very little experience working with Board of Directors/Stakeholders. Outline a protocol of meeting and key events for the new President of the Board of Directors/Stakeholders for the Private non-profit.
ABC Limited Company is looking to invest in aproject. The cost of that project is $60,000 and the cash inflows and outflows of the project for 5 years, are shown in Table 1 below. The company’s WACC is 7%. Years Cash InflowsCash Outflows0 (Initial Outlay) $60,000.001 $20,000.00 $5,000.002 $21,000.00 $2,000.003 $22,000.00 $2,000.004 $14,000.00 $2,000.005 $10,000.00 $1,000.00 Profitability Index (PI) ii. Net Present Value (NPV), and estimate the Internal Rate of Return (IRR) of the Project using the given interest rate and 9%.
Following is the payoff table for the Pittsburgh Development Corporation (PDC) Condominium Project. Amounts are in millions of dollars. State of Nature Decision Alternative Strong Demand S1 Weak Demand S2 Small complex, d1 8 7 Medium complex, d2 14 5 Large complex, d3 20 -9 Suppose PDC is optimistic about the potential for the luxury high-rise condominium complex and that this optimism leads to an initial subjective probability assessment of 0.8 that demand will be strong (S1) and a corresponding probability of 0.2 that demand will be weak (S2). Assume the decision alternative to build the large condominium complex was found to be optimal using the expected value approach. Also, a sensitivity analysis was conducted for the payoffs associated with this decision alternative. It was found that the large complex remained optimal as long as the payoff for the strong demand was greater than or equal to $17.5 million and as long as the payoff for…
A payoff table is given as: S1 S2 S3 D1 250 750 500 D2 300 -250 1200 D3 500 500 600 (a) What choice should be made by the optimistic decision maker? (b) What choice should be made by the conservative decision maker? (c) What decision should be made under minimal regret? (d) If the probabilities of d1, d2, and d3 are .2, .5, and .3, respectively, then what choice should be made under expected value?
For the decision tree in Figure 12.13, assume Chance Events E and F are independent. a Draw the appropriate decision tree and calculate the EVPI for Chance Event E only b Draw the appropriate decision tree and calculate the EVPI for Chance Event F only. c Draw the appropriate decision tree and calculate the EVPI for both Chance Events E and F: that is, perfect information for both E and F is available before a decision is made.
The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature. Decision Alternative If S1 d₁ d₂ States of Nature then ? $1 240 90 90 15 The probabilities for the states of nature are P(S₁) = 0.65, P(s₂) = 0.15, and P(s3) = 0.20. (a) What is the optimal decision strategy if perfect information were available? ; If S₂ then ? 90 65 ; If S3 then ? (b) What is the expected value for the decision strategy developed in part (a)? î (c) Using the expected value approach, what is the recommended decision without perfect information? What is its expected value? The recommended decision without perfect information is ? EV = (d) What is the expected value of perfect information? EVPI = î

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