# 110 CHAPTER 3 0 DECISION ANALYSIS

110 CHAPTER 3 0 DECISION ANALYSIS
information 18.1101 favorable, the probability of a suc- MONETARY
cessful store 18 only 0.2. Without any information, VALUE UTILITY
Sue estimates that the probability of a successful
store will be 0.6. A successful store will give a re- \$100900 1
turn of \$ loo,000. If the store is built but is not suc- 330-000 0-4
cessful, Sue will see a loss of \$80,000. Of course, \$0 02
she could always decide not to build the retail store. \$20,000 0.1
(a) What do you recommend?
(b) What impact would a 0.7 probability of obtain- 480”)” 0’05
ing favorable information have on Sue’s deci- 4100000 0
sion? The probability of obtaining unfavorable
information would be 0.3. (f) Compute the expected utility given the following
(c) Sue believes that the probabilities of a successful utility table. Does this utility table represent a
and an unsuccessful retail store given favorable risk seeker or a risk avoider?
information might be 0.8 and 0.2, respectively,
instead of 0.9 and 0. l , respectively. What impact, MONETARY
if any, would this have on Sue’s decision and the VALUE UTILITY
best EMV? \$100,000 1
(d) Sue had to pay \$20,000 to get information. Would
\$80,000 0.9
her deeismn change if the cost of the information
increased to \$30,000? \$0 0-8
(e) Using the data in this problem and the following -\$20,000 0.6
utility table, compute the expected utility. Is this -\$80.000 0.4
the curve of a risk seeker or a risk avmder‘? \$100,000 0
Internet Homework Problems
problems, Problems 3-53 to 3-5 8.
Case Study
Startlng nght Corporation
After watching a movie about a young woman who quit a food would be frozen. This would allow for natural ingredients,
successful corporate career to start her own baby food com- no preservatives, and outstanding nutrition.
pany, Julia Day decided that she wanted to do the same. In Getting good people to work for the new company was
the movie, the baby food company was very successful. Julia also important. Julia decided to find people with experience
knew, however, that it is much easier to make a movie about in finance, marketing, and production to get involved with
a successful woman starting her own company than to actu- Starting Right. With her enthusiasm and charisma, Julia was
ally do it. The product had to be of the highest quality, and able to find such a group. Their first step was to develop
Julia had to get the best people involved to launch the new prototypes of the new frozen baby food and to perform a
company. Julia resigned from her job and launched her new small pilot test of the new product. The pilot test received
companywStaiting Right. rave reviews.

Julia decided to target the upper end of the baby food mar- The final key to getting the young company off to a good
ket by producing baby food that contained no preservatives but start was to raise funds. Three options were considered: corpo-
had a great taste. Although the price would be slightly higher rate bonds, preferred stock, and common stock. Julia decided
than for existing baby food, Julia believed that parents would be that each investment should be in blocks of \$30,000. Further-
willing to pay more for a high-quality baby food. Instead of put- more, each investor should have an annual income of at least
ting baby food in jars, which would require preservatives to sta- \$40,000 and a net worth of \$100,000 to be eligible to invest in
bilize the food, Julia decided to try a new approach. The baby Starting Right. Corporate bonds would return 13% per year for

Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

# Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

### Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors: