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use Palisade software to solve this problem in terms of decision-(Answered)

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use Palisade software to solve this problem in terms of decision tree and sensitivity analysis


QUESTION 2

 

Car-Go has developed a petrol additive, called Sparky. It is designed to limit damage to a car?s fuel

 

system by protecting the spark plugs.

 

Car-Go has to decide whether or not to market this product. Furthermore, before deciding whether to

 

market it, Car-Go can choose to engage engineering consultants to comprehensively test the effectiveness

 

of the product. This cost of this testing is $225,000.

 

Car-Go expects a net result (taking into account development and marketing costs) of

 

$5,000,000 if it markets this product and the marketing is successful.

 

-$2,600,000 if it markets this product and the marketing is unsuccessful.

 

In the past, similar motoring products have succeeded for Car-Go 60% of the time.

 

Car-Go believes the chance that the marketing of Sparky will be successful is

 

80%, if the test results indicate that the product is very effective.

 

30%, if the test results indicate that the product is not very effective.

 

Car-Go believes there is a 0.60 probability that the test results will indicate that the product is very

 

effective.

 

(a)

 


 

(i)

 

(ii)

 

(iii)

 


 

In Excel, construct a table of input values for this problem. Provide a printout.

 

Construct a well-labelled decision tree for this problem. Provide a printout.

 

On the basis of this decision tree analysis, what decision(s) should Car-Go make?

 

Give reason(s) for your answer.

 


 

(b)

 


 

Perform sensitivity analysis on the optimal decision making

 

(i)

 

by varying the estimate of the cost of testing.

 

Report your findings and provide evidence for your statements.

 

(ii)

 

by simultaneously varying the estimate of the profit from successful marketing and the

 

loss from unsuccessful marketing.

 

Report your findings and provide evidence for your statements.

 


 

 

Paper#9256620 | Written in 27-Jul-2016

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