Question

The Carolina Cougars is a major league baseball expansion team beginning its third year of operation. The team had losing records in each of its first 2 years and finished near the bottom of its division. However, the team was young and generally competitive. The team's general manager, Frank Lane, and manager, Biff Diamond, believe that with a few additional good players, the Cougars can become a contender for the division title and perhaps even for the pennant. They have prepared several proposals for freeagent acquisitions to present to the team's owner, Bruce Wayne.

Under one proposal the team would sign several good available free agents, including two pitchers, a good fielding shortstop, and two power-hitting outfielders for $52 million in bonuses and annual salary. The second proposal is less ambitious, costing $20 million to sign a relief pitcher, a solid, good-hitting infielder, and one power-hitting outfielder.
The final proposal would be to stand pat with the current team and continue to develop.
General Manager Lane wants to lay out a possible season scenario for the owner so he can assess the long-run ramifications of each decision strategy. Because the only thing the owner understands is money, Frank wants this analysis to be quantitative, indicating the money to be made or lost from each strategy. To help develop this analysis, Frank has hired his kids, Penny and Nathan, both management science graduates from Tech.
If the team is not in contention, it will either sell some players' contracts later in the season for profits of around

$12 million or stand pat. If it stays with its roster, the probability of high attendance with profits of $110 million will be .15, the probability of mediocre attendance with profits of $70 million will be .30, and the probability of low attendance with profits of $50 million will be .55. If the team sells players late in the season, there will be a .10 probability of high attendance with profits of $105 million, a .30 probability of mediocre attendance with profits of $65 million, and a .60 probability of low attendance with profits of $45 million.

Assist Penny and Nathan in determining the best strategy to follow and its expected value.



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  • CreatedJuly 17, 2014
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