Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

( 1 1 marks in total ) MyBusinessCom is inquiring whether to extend an $ 8 0 , 0 0 0 credit to a potential

(11 marks in total) MyBusinessCom is inquiring whether to extend an $80,000 credit
to a potential new customer. Very often, the following categories are used for the credit-
worthiness of a credit seeker: poor risk, average risk, and good risk. Based on historical data, 25
percent of credit seekers similar to the new potential customer are poor risks, 50 percent are
average risks, and the remaining are good risks. If credit is granted, the expected profit for poor
risks is -$10,000, for average risks $15,000, and good risks $25,000. The company may consult a
credit-rating organization for a fee of $7,000 per case evaluated.
2
(a)(4 marks) Develop a decision analysis formulation of this problem by identifying the
decision alternatives, the states of nature, and the pay-off table when the credit-rating
organization is not used.
(b)(5 marks) Find the EVPI.
(c)(2 marks) Does your answer in (b) indicate that consideration should be given to using
the credit-rating organization? Justify

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Stage Management

Authors: Lawrence Stern, Jill Gold

11th Edition

9781138124462

More Books

Students also viewed these General Management questions

Question

What benefit or advantage does your organization offer each public?

Answered: 1 week ago