2 Enter the data only in the yellow cells. 3 This template is designed to allow up to 5 decision alternatives and future events. Not for commercial use. 4 Enter names of decision alternatives and future events in the appropriate cells in column A or K and row 7. Probabilities are optional. 5 6 Payoff Table Future Events 7 Decision Alternative Low Product Demand High Product Demand 8 Expand existing plant $200,000.00 9 Build new plant $100,000.00 $300,000.00 $450,000.00 10 11 12 13 Probability 14 15 Opportunity Loss Matrix 16 Decision Alternative 17 Expand existing plant 18 Build new plant 19 Future Events Low Product Demand High Product Demand $0.00 $100,000.00 $150,000.00 $0.00 20 21 22 23 Maximax Decision 24 Maximin Decision 25 Opportunity Loss Decision 26 Expected Value Decision 27 EVPI Build new plant Expand existing plant #N/A #N/A Build new plant Maximum Minimum $300,000.00 $200,000.00 Expected Valu $450,000.00 $100,000.00 Maximum Expected Value $0.00 Maximum $150,000.00 $100,000.00 Edwards Machine Tools needs to purchase a new machine. The basic model is slower but costs less, whereas the advanced model is faster but costs more. Profitability will depend on future demand. The following table presents an estimate of profits over the next three years. Demand Volume Decision Basic model Low Medium High $60,000 Advanced model $40,000 $105,000 $100,000 $135,000 $180,000 Fill in the table below for maximum and minimum profit payoffs under each model. Round your answers to the nearest dollar. 1. Decision alternative Basic model Advanced model Maximum Minimum $ $ Calculate the amounts foregone by not adopting the optimal course of action for each possible demand level. Determine the maximum opportunity cost for each model. Fill in the table below. If your answer is zero, enter "0". Round your answers to the nearest dollar. 2. 3. Opportunity Loss Matrix Future events Decision alternative Low Medium High Maximum Basic model Advanced model $ Given the uncertainty associated with the demand volume, and no other information to work with, what decision would you make? a. The aggressive strategy (maximax) is to choose the advanced model OR basic model? b. The conservative strategy (maximin) is to choose the advanced model OR basic model? c. The opportunity loss strategy is to choose the advanced model OR basic model? Note: all relevant information provided.