Exam 19: Decision Analysis

Dianna Ivy is evaluating a plan to expand the product ion facilities of International Compressors Company which manufactures natural gas compressors.Dianna feels that the price of coal is a significant factor in her decision.Below are her estimates of payoffs from various expansion plans under different prices of coal.If Diana knows the price of coal in the future will be the same as it is today, what expansion plan should she select? PAYOFFE ( \riil ) Lower \arre Higher Larpe exparisior -\ 500 -\ 100 \ 1,000 Medilrl exparsion -\ 300 \ 150 \ 800 Brrall exparisior -\ 50 \ 100 \ 400 No exparisior \ 0 \ 75 \ 300

In decision-making under uncertainty, a pessimistic approach is the __________.

A CEO is looking to determine how much profit the company can make if they purchase one of their competitors.Key to the decision is how much profit each competitor is likely to make given different levels of future demand in their market.Estimates of the profits for each competitor that could be purchased are estimated in the table below based on demand.If the CEO knows that demand will significantly decrease, which competitor should the company purchase? PAYOFFS ( \mil ) Biprificarit decrease Small decrease Bmall increase Siprificarit increase Competitor A \ 50 \ 100 \ 270 \ 1,450 Competitor B \ 25 \ 75 \ 350 \ 1,330 Competitor C \ 15 \ 80 \ 300 \ 1,700 Competitor D \ 55 \ 90 \ 33 \ 1,500

If there is a 70% chance that the economy will grow and a 30% chance that it will not, then an investor might expect to make $90 on an investment or $25 on that same investment, respectively for the state of the economy.In this situation, their expected return would be $70.50.

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following table which shows expected profits (in $10,000's)for various market conditions and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$ Investment Bull(.5) Neutral(.3) Bear(.2) T-Bills 3 3 3 Stocks 21 11 -30 Bonds 15 4 -3 Mixture 13 6 -10 The EMV of investing in Bonds is ________.

In a decision-making under risk scenario, the expected monetary value of a decision alternative is the weighted average (using the probability of each state of nature as the weight)of the payoffs to the decision alternative in each state of the nature.

In a decision analysis problem, variables (such as investing in common stocks or corporate bonds)which are under the decision maker's control are called decision alternatives.

In decision-making under risk, the expected monetary value without information is ____________.

A CEO is looking to determine how much profit the company can make if they purchase one of their competitors.The decision of which competitor to choose is a ____________ since the CEO __________.