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Seneca i Winery recently purchased land for the purpose of establishing a new vineyard. Management is considering two varieties of white grapes for the new
Seneca i Winery recently purchased land for the purpose of establishing a new vineyard. Management is considering two varieties of white grapes for the new vineyard: Chardonnay and Riesling The Chardonnay grapes would be used to produce a dry Chardonnay wine, and the Riesling grapes would be used to produce a semidry Riesling wine. It takes approximately four years from the time of planting before new grapes can be harvested. This length of time creates a great deal of uncertainty concerning future demand and makes the decision concerning the type of grapes to plant mult. Three possibles are being considered: Chardonnay grapes only. Riesling grapes only, and both Chardonnay and Riesling grapes. Seneca management decided that for planning purposes would be adequate to consider only two demand possibilities for each type of wine: strong or weak with two possibilities for each type of wine it was necessary to assess four probabisties. With the help of some forecast in industry publication management made the following probability assessments Resting Demand Chardonnay Demand Weak Strong Werk 0.05 0.50 Strong 0.25 0,20 Haven projection show an annual contribution to profit of $10,000 Seneca only plants Chardonnay grapes and demand is weak for Chardonnay wine, and $50,000 if the company only plants Chardonnay grapes and demand is strong for Chardonnay wine. If Seneca Hill only plants being grapes, the annual profit project is $15.000 demand is weak for Riesling grapes and 35,000 demand is strong for Rising grapes. If Seneca plants both types of grapes, the profit projections are as shown in the following the Riesling Demand Chardonnay Demand Weak Strong We $12.000 $30,000 Strong $16,000 $50,000 (a) What the decision to be made what is the chance event, and what is the conquence? The decision to be made The chance event is Sud Identify the atratives for the decisions and the possible outcomes for the chance events. The statives for the decisions are The possible outcomes for the chance events are The conseguir -Select- Sign in - Macy's is Handshake Victoria's Secret A... (b) Develop a decision tree. (Enter monetary values in thousands and percentages in decimal form.) Decision Tree Description Weak for Chardonnay Plant Chardonnay Strong for Chardonnay Weak Chardonnay, Weak Riesling Weak Chardonnay, Strong Riesling Plant both grapes Strong Chardonnay, Weak Riesling Strong Chardonnay, Strong Riesing Weak for Riesling Plant Riesling Strong for Riesling (C) Use the expected value approach to recommend which alternative Seneca Hill Winery should follow in order to maximize expected annual proft. EV(Plant Chardonnay) EV(Plant both grapes) EV(Plant Riesling) The best decision is to plant -Select- grapes. (0) Suppose management is concerned about the probability assessments when demand for Chardonnay wine is strong. Some believe it is likely for Riesing demand to also be strong in this case Suppose the probability of strong demand for Chardonnay and weak demand for Riesling is 0.0s and that the probability of strong demand for Chardonnay and strong demand for Riesling is 0:46. How does this change the recommended decision? Assume that the probabilities when Chardonnay demand is weak are still 0.05 and 0.50 Vant Chardonnay) Plant both grapes) EVPlant Riesling) The best decision is to piante grapes (e) Other members of the management team expect the Chardonnay market to become saturated at some point in the future, causing a fall in prices. Suppose that the annual profit projections fall to $50,000 when demand for Chardonnay is strong and Chardonnay grapes only are planted. Using the original probability assessments, determine how this change would affect the optimal decision Plant Chardonnay) Vat both grapes VPlant The best decision is to plant Begrepes
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