CE of Acquiring and Not Acquiring Versus Bid. CE $MM. Bid $MM. Optimal Bid. Optimal CE$10.64M. Optimal Bid $8.75M. CE $MM. Maximum Bid $11.75M. Bid $MM. Recommendations (Risk Neutral). Optimal Bid: $8.75M Maximum Bid: $11.75M If Acquire S.S.Kuniang :
Optimal Bid $8.75M
Maximum Bid $11.75M
If the Coast Guard values the Kuniangat scrap value:
NEES should repair it without self-unloader.
If the Coast Guard values it at the auction price:
NEES should keep it with self-unloader by overpaying an additional repair cost of $5.25M
NEES should buy GD-II
If the probability that the Coast Guard rules the SS Kuniang should be valued at its salvage price increases, so does the overall value of the deal at the given bid. The optimal bid also goes up in this case but only marginally.
The optimal bid is not highly sensitive to risk-aversion because it increases only marginally with higher risk aversion