The renowned surgeon Dr. Jaime Dorado specializes in total ankle replacement surgeries. He has recently perfected the Slip-In system, an alternative to the STAR (Swedish Total Ankle Replacement) system, and is working with a manufacturer to produce the hardware required for the artificial ankle. The manufacturer has developed four alternative manufacturing processes (A, B, C, and D) ranging from a manual process through various levels of automation to a high speed line using computer integrated manufacturing techniques. The decision as to which of the four alternatives has to be made at a time when the eventual demand for the SlipIn system cannot be known with certainty. He is considering three possible demand levels characterized as low, medium and high. Together with the manufacturer and his financing source, he has developed the present values of the profits accruing from the Slip-In system over the lifetime of the investment. These are shown below: PRODUCTION DEMAND PROCESS LOW MEDIUM HIGH A $2.00 $3.50 $6.00 B $2.50 $3.50 $5.40 C $3.00 $3.75 $4.90 D $3.00 $3.50 $4.70

Part 1 - PT/DR Because the Slip-In process is new and must compete against the more established STAR process, Dr. Dorado is so uncertain about the environment that he is unable to estimate probabilities for the levels of demand. Determine the decisions he would make and associated payoffs for each of the four decision rules discussed.

Part 2 - EMV/EVPI Dr. Dorado called a meeting of all the stakeholders in his proposed venture and engaged them in brainstorming sessions in order to obtain best estimates of the probability of each level of demand. The consensus conclusion was that the probabilities of low, medium and high demand were 0.1, 0.5 and 0.4 respectively. What would be his optimal EMV decision and payoff? What is the most Dr. Dorado should be willing to pay for additional information that would allow him to be more comfortable with his subjective demand probabilities?

Part 3 - Bayes One of the stakeholders expressed familiarity and satisfactory prior professional experience with WEX, Ltd., a consulting group that specialized in conducting market research studies for emerging medical technologies. WEX, Ltd. was asked to conduct a market research study for Dr. Dorado's venture group. The cost of the study was set at $0.025. The study would indicate whether there was a poor, fair, or good market for the Slip-in system. Although WEX had an excellent reputation, Dr. Dorado wishes to use due diligence by contacting references who have used WEX's services in the past. WEX, Ltd. Provided Dr. Dorado with a list of 30 companies they conducted studies for in the past. Dr. Dorado and his staff contacted each of these references and asked what kind of market they actually experienced for their products and what WEX, Ltd, had predicted their market to be. This information, he felt, would be of great assistance in helping him to not only decide whether to use WEX,Ltd., but also in determining the actual worth of the information that they would provide. The information that was obtained is shown below. Process this information so it can be incorporated in your decision-making process.

EVSI

If Dr. Dorado decides to use WEX

What is the EMV if WEX indicates a GOOD demand and Dr. Dorado chooses process D

(Do not use $ sign and round to two decimal places)