THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL GOVERNMENT. THE COMPANY HAS DECIDED TO BID $110M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING THE CONTRACT WITH HIS BID. IF THE CO. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR SUBCON THE PROCESSING OUT TO A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS: DEVELOP NEW PROCESS PROBABILITY OUTCOMES PROFIT(M) $600 GREAT SUCCESS 0.30 0.60 300 MODERATE SUCCESS FAILURE 0.10 (100) USE PRESENT PROCESS OUTCOMES PROBABILITY PROFIT(M) GREAT SUCCESS 0.50 $300 0.30 200 MODERATE SUCCESS FAILURE 0.20 (40) SUBCONTRACT PROBABILITY OUTCOMES PROFIT(M) 250 MODERATE SUCCESS 1.00 THE COST OF PREPARING THE CONTACT PROPOSAL IS $2M. IF THE CO. DOES NOT MAKE A BID, IT WILL INVEST IN AN ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $30M. CONSTRUCT A DECISION TREE FOR THIS SITUATION & DETERMINE WHETHER THE CO SHOULD MAKE A BID.

THE AMERICO OIL CO. CONSIDERING MAKING A BID FOR A SHALE OIL DEVELOPMENT CONTRACT TO BE AWARDED BY THE FEDERAL GOVERNMENT. THE COMPANY HAS DECIDED TO BID $110M. THE CO. ESTIMATES THAT IT HAS 60% CHANCE OF WINNING THE CONTRACT WITH HIS BID. IF THE CO. WINS THE CONTRACT, IT CAN CHOOSE 1 OF THE 3 METHODS FOR GETTING THE OIL FROM THE SHALE: IT CAN DEVELOP A NEW METHOD FOR OIL EXTRACTION, USE AN EXISTING (INEFFICIENT) PROCESS, OR SUBCON THE PROCESSING OUT TO A NUMBER OF SMALLER COMPANIES ONCE THE SHALE HAS BEEN EXCAVATED. THE RESULTS FROM THESE ALTERNATIVES ARE GIVEN AS FOLLOWS: DEVELOP NEW PROCESS PROBABILITY OUTCOMES PROFIT(M) $600 GREAT SUCCESS 0.30 0.60 300 MODERATE SUCCESS FAILURE 0.10 (100) USE PRESENT PROCESS OUTCOMES PROBABILITY PROFIT(M) GREAT SUCCESS 0.50 $300 0.30 200 MODERATE SUCCESS FAILURE 0.20 (40) SUBCONTRACT PROBABILITY OUTCOMES PROFIT(M) 250 MODERATE SUCCESS 1.00 THE COST OF PREPARING THE CONTACT PROPOSAL IS $2M. IF THE CO. DOES NOT MAKE A BID, IT WILL INVEST IN AN ALTERNATIVE VENTURE WITH A GUARANTEED PROFIT OF $30M. CONSTRUCT A DECISION TREE FOR THIS SITUATION & DETERMINE WHETHER THE CO SHOULD MAKE A BID.

Linear Algebra: A Modern Introduction

4th Edition

ISBN:9781285463247

Author:David Poole

Publisher:David Poole

Chapter2: Systems Of Linear Equations

Section2.4: Applications

Problem 26EQ

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