John Wayne is 50 years old and plans to retire in 20 years. His new employer provides 401K retirement plan and he plans to accumulate $1,000,000 in his retirement account by age of 70. Use Excel to answer the following questions

a-What is the probability of any failure that require repair in the next 5 years?

1-P = 1-.80 = .2

b-What is the expected repair cost? What is the Standard deviation of repair cost?Hint: Use Excel.

Expected Repair Cost = 96

Standard Deviation = 252

c-If the cost of purchasing a 5-year warranty is $129, calculate the expected gain or loss for a consumer that purchase this warranty. Would you recommend purchasing a warranty? Why?

96-129= -33

I wouldn't recommend purchasing the warranty. You would lose $33 if you purchase the warranty so you should avoid the purchase

d-Would you a buy 5-year warranty if it costs $90? Why?

At $90 you should by the warranty because the cost is less than the $96 for the expected repair.

5- (14 pts.) A new small manufacturing company, which produces toys, has to decide whether it wants to distribute its products through a wholesale distributor, go directly to department stores, or go strictly online. The following table shows revenue results for each condition.

Distribution Network

Good Economy

Fair Economy

Poor Economy

Wholesale

$75million

$50m

$25m

Department Stores

$83m

$40m

$5m

Online

$180m

$60m

-$12m

Probability

0.60

0.30

0.10

a-Find the Maximax, Maximin, Equally likely, and Hurwicz Decisions.Must show all work and calculations in tabular Excel format.

b-Find the Minimax regret decision.Use Tabular Excel format.

37

c-Based on above analysis, what is your recommendations to the management?

Online

6- (10 pts.) John Wayne is 50 years old and plans to retire in 20 years. His new employer provides 401K retirement plan and he plans to accumulate $1,000,000 in his retirement account by age of 70. Use Excel to answer the following questions.

a-How much he has to contribute per year at return of 7% per year to reach his retirement goal.

b-Redo part (a) if john decides to increase his contribution 0.50% per year over 20 years.

c-Redo part (a) if the yearly return for the first 10 years is 7% and last 10 years is 9%.