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This analysis focuses on Ken Brown’s decision-making process regarding an investment opportunity, utilizing the Maximize Expected Monetary Value (EMV) model. We address the optimal decision point and analyze Ken's concerns about the $300,000 figure for Sub 100 in a favorable market. By applying mathematical equations, we find that Ken would reconsider his decision if the figure were lowered to approximately $292,857, which represents a reduction of about $7,143. This analysis aids in understanding how EMV can guide critical business choices.
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Management ScienceBUS 340 Chapter 3 Problem 3-18 Kelly Devilbiss
(a) What decision model should be used? Answer: Ken Brown should use the Maximize Expected Monetary Value (EMV) model. Kelly Devilbiss
(b) What is the optimal decision? Kelly Devilbiss
(c) Ken believes that the $300,000 figure for the Sub 100 with a favorable market is too high. How much lower would this figure have to be fore Ken to change his decision made in part (b)? Solve for x: .70x – 200,000(.30) = 145,000 .70x – 60,000 = 145,000 .70x = 205,000 205,000 / .70 = 292,857 Answer: $292,857 (or $7,143 lower) Kelly Devilbiss
