Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his unive

ID: 2711497 • Letter: K

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Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary by a factor of over 100. At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil because of competition. His alternatives are shown in the following table:

Favorable Market ($)

with probability 70%

Unfavorable Market ($)

with probability 30%

For example, if Ken purchases a Sub 100 and if there is a favorable market, he will realize a profit of $300,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $200,000. But Ken has always been a very optimistic decision maker.

Although Ken Brown is the principal owner of Brown Oil, his brother Bob is credited with making the company a financial success. Bob is vice president of finance. Bob attributes his success to his pessimistic attitude about business and the oil industry.

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Part 1 of 3 - Part 1

Equipment

Favorable Market ($)

with probability 70%

Unfavorable Market ($)

with probability 30%

Sub 100 300,000 –200,000 Oiler J 250,000 –100,000 Texan 75,000 –18,000

Question 1 of 9

10.0 Points If Bob would want to base his decision on the Maximin criterion, then which equipment would he choose? A.Sub 100 B.Oiler J C.Texan D.The same as his brother Ken's choice Reset Selection

Question 2 of 9

10.0 Points Based on the above information, the Expected Monetary Value (EMV) of Sub 100 is . (Please round to a whole dollar.)
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Question 3 of 9

10.0 Points Based on the above information, the Expected Monetary Value (EMV) of Oiler J is . (Please round to a whole dollar.)

Question 4 of 9

10.0 Points If Ken would want to maximize the Expected Monetary Value (EMV), then he should choose __________. A.Sub 100 B.Oiler J C.Texan Reset Selection

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Question 5 of 9

10.0 Points If Ken believes that Sub 100 cannot get $300,000 even in a favorable market, then this figure needs to be at least less for Ken to change his decision. (Please round to a whole dollar.)

Hint: You may want to use the What-If-Analysis Goal Seek Tool in Excel as described in Week 1 PPP Slides (1-30).

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Question 1 of 9

10.0 Points If Bob would want to base his decision on the Maximin criterion, then which equipment would he choose? A.Sub 100 (it will provide the maximum revenue )

Question 2 of 9

10.0 Points Based on the above information, the Expected Monetary Value (EMV) of Sub 100 is . (Please round to a whole dollar.)
$150000

Question 3 of 9

10.0 Points Based on the above information, the Expected Monetary Value (EMV) of Oiler J is . (Please round to a whole dollar.)
$145000

Question 4 of 9

10.0 Points If Ken would want to maximize the Expected Monetary Value (EMV), then he should choose __________. A.Sub 100

Mark for Review What's This?

Question 5 of 9

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