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Quiz

BUS 336 Study Guide - Quiz Guide: Emv


Department
Business Administration
Course Code
BUS 336
Professor
Cleusa Yamamoto
Study Guide
Quiz

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2. The bank should not install the generator because the EMV of not installing is $531,200 compared to
the EMV of installing the generator which is the cost of the generator ($900,000.00).
3-2
b) If there is an upside estimate suggesting that the economy will improve then Cosmo Sports should
build the large factory instead of building the small factory. The profits of the large factory will be $23.25
million compared to the $19.5 million of possible profits from the small factory.
c) The best strategy if there's a downside estimate suggesting that the economy will deteriorate is for
Cosmo Sports to build the large factory. The profits of the large factory will be $13.5 million compared
to the $13 million of possible profits from the small factory.
d)
-1 -2 -3 -4
Outcome
(States of
nature)
Prior
Prob
.
Conditional Prob. Joint prob.
Given demand =(2) X (3)
Positive Neg. Positive Neg.
Positive
Results 0.7 0.75 0.25 0.525 0.18
Negative
Results
0.3 0.1 0.9 0.03 0.27
Total 0.555 0.45
3-3 b) Cosmo Sports should make the decision without considering the advice because the EMV for
alternative 2 (to make decision without considering the advice) is $29 million compared to the EMV of
alternative 1 (considering the expert’s advice) which is $20.025 million. Given that Cosmo Sports makes
the decision without considering the advice, Cosmo Sports should build a large factory.
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