A buyer at Best Buy electronics is trying to decide how many wearable technology devices to purchase from a company called "Muse" for the upcoming Winter Holiday Season. The problem being is that the product is apparently high in demand and it will take 2.5 months to fill any orders placed with the company. Most importantly, the product has no known demand characteristics because it is has never previously been sold at Best Buy. According to company purchasing procedures, Best Buy has a policy to execute purchasing decisions by looking at demand profiles for products with similar technology characteristics. The buyer has been requested to make the purchasing decision for the new product using the following demand characteristics of similar innovative products sold by Best Buy: Demand: 100 200 300 400 500 600 700 800 900 1000 Probability 0.050 0.075 0.100 0.150 0.200 0.175 0.100 0.075 0.050 0.025 Best Buy has negotiated the cost of the device for $185 per unit and intends to sell the product for $295. There is the possibility that the wearable technology device will not be successful and any remaining unsold units after the holiday season will be liquidated using a blow-out sale in the Spring for $115 each. The buyer also knows that in previous years when demand for new electronic products exceeded supply, there was a cost to business through loss of future sales, good will, etc. Assuming the demand and costing information above is accurate, answer the following questions by developing a spreadsheet model using Excel (do not use paper and pencil): a. Construct the payoff table. Use an estimated additional cost (loss) of $20.00 per device whenever demand exceeds supply. b. What decision should be made according to the maximax decision rule? c. What decision should be made according to the maximin decision rule? d. What decision should be made according to the EMV decision rule? e. What decision should be made according to the minimax regret decision rule? f. What decision should be made according to the EOL decision rule? g. How much should the buyer be willing to pay to obtain a demand forecast that is 100% accurate? Note: There is no need to create complicated Excel formulas to create your payoff table. Keep it simple! Please make sure to have a concluding statement for each of the above decision rules or marks will be deducted. Question 2: The owner of a BC Company called "WEEDS" is considering the purchase of one of the largest marijuana production facility that is currently up for sale in Calgary Alberta. The production of marijuana in Canada is expected continued growth over the next decade due to legalization and growing sales beyond medicinal purposes. There is uncertainty however with respect to how provincial governments will authorize the legal production of marijiuana amongst various producers. The Alberta government restricts production to only a select number of facilities (15 in total) in the province and it is uncertain if there is a transfer in ownership of the facility if WEEDS would be still be allowed to legally produce. The owner has conducted some research into the Alberta's government rules to authorize specific production facilities and feels there's an 80% likelihood that this facility being sold will still be one of the 15 authorized producers for the province. The sale of the production facility is to be determined at a sealed bid auction next week. The owner of WEEDs estimates that if he bids $900,000, there is a 25% chance that he will obtain the facility; if he bids $1.35 million, there is a 45% chance that he will obtain the facility; and if he bids $1.75 million

facility is the legally authorized to produce, he estimates to make $2.2 million in profit during the first year of operation. However, if the Alberta government fails to authorize the facility, he expects to salvage the facility for only $250,000. Please complete the following to help the owner of WEEDs with his decision making strategy: a) Using Treeplan.xla, create a decision tree for this problem using the first year of operation as a time boundary. Provide a clear statement of the optimal decision strategy according to the EMV decision criterion. b) State the risk profile of the optimal decision strategy in part a). c) Create a sensitivity table using Data Tables in Excel to show how the optimal decision may change if the probability of the production facility being one of the 15 authorized producers varies from 0% to 100% in steps of 10%. Be sure to provide a statement saying what the sensitivity table means in the context of the decision problem. d) Develop a second sensitivity table showing how the overall optimal decision may change if the facility is authorized to produce and if profits of the new production facility varies from $2 to $3 million dollars in steps of $100,000. Again, state what the sensitivity table means.