(20) Ci rail is bidding on a project that it figures will cost $400,000 to perfo
ID: 376767 • Letter: #
Question
(20) Ci rail is bidding on a project that it figures will cost $400,000 to perform. Using a 25% markup, it would like to charge $500,000, netting a profit of $100,000. However, it has been learned that another company, Xrail, is also considering bidding on thc project If Xrail does submit a bid, it figures to be a bid of $470,000. Cinrail really wants this project and is consideng a bid with only a 15% markup to $460,000 to ensure winning regardless of whethcr or not Xrail submits a bid, as the lowest bid will be accepted. Note, lowest bid is the one accepted. a. Prepare a profit payoff table trora Cinrail's point of view. b. What decision would be made if Cinrail was optimistic, conscrvative and minimized egret? If Xrail is known to submit bids on only 25% of the projects it considers, what decision should Cinrail make and what is their expected profit? Given your solution in (c), how much would a corporate spy, who will be able to tell if Xrail will bid or not, be worth to Cinrail? d.Explanation / Answer
Profit payoff from Cinrails point of view
0
b. If Cinrail was optimistic it would go ahead with the present bid of 500000
If cinrail was conservative it would match Xrail's bid and would propose 470000
If it minimizes regret it would submit a bid lesser than Xrail and would be in the range of 450000-460000
c)
Xrail submits only 25% of the projects it consders. Then Cinrail should go ahead with the 500,000 bid since probability of its winning the bid is 0.75. The profit would be 100000
d)
A corporate spy would worth a good amount. If he can accurately predict if Xrail bids then accordingly Cinrail can bring down its bid price. It can bring down its bid price to 470000 or lesser. The spy would be worth 500000-470000 = 30,000
Cost Bid Profit Cinrail is the only company submitting the bid 4,00,000 500000 100000 Xrail submits0
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