Question
A company is trying to decide whether to bid for a certain contract or not. They estimate that merely preparing the bid will cost $8,000.
A company is trying to decide whether to bid for a certain contract or not. They estimate that merely preparing the bid will cost $8,000. If their company bid then they estimate that there is a 70% chance that their bid will be put on the "short-list", otherwise their bid will be rejected.
Once "short-listed" the company will have to supply further detailed information (entailing costs estimated at $5,000). After this stage their bid will either be accepted or rejected.
The company estimates that the labour and material costs associated with the contract are $108,000. They are considering three possible bid prices, namely $160,000, $180,000 and $200,000. They estimate that the probability of these bids being accepted (once they have been short-listed) is 0.80, 0.70 and 0.60 respectively.
What should the company decision be and what is the expected monetary value of your suggested course of action?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started