4. Decision Trees (40 points). Assume that you have a client that is a paper manufacturer...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
4. Decision Trees (40 points). Assume that you have a client that is a paper manufacturer and they have expressed concern that the government will pass a new regulation banning the use of chlorine-based technologies within their manufacturing process. If the firm were certain that the regulation would pass they would take proactive remedial action now (at a cost of $500K) and introduce a newer, compliant technology. They don't want to spend the $500K if they don't have to. If they don't act now, believing that the government will not change the regulation, and end up being wrong then they will find themselves changing their manufacturing process from a reactive position and the cost for getting in compliance will be $850K, much greater than the $500K. Currently, the company's best guess that the government will pass the new regulation is 20%. As a consultant in this area your first instinct is to see if you can get more information on the likelihood of the government moving forward and making a change. Some research informs you that there are two firms available with expertise in forecasting regulatory policy as it relates to the papermaking industry. Firm A charges $80K for a study and their record is perfect. In the past, whenever Firm A has predicted that the government would introduce a more stringent regulation the prediction always came true and for those times that Firm A predicted that no new regulation would occur, none has occurred. If Firm A were to predict a change then your client would immediately undertake proactive remedial action and if Firm A predicted no change they would maintain the current manufacturing process. Another firm, Firm B, has a much lower fee, charging only $20K but their predictive performance has not been perfect. In the past, Firm B has predicted government policy for passing new regulations with a ninety percent accuracy (i.e. for those times the government introduced a tougher 4. Decision Trees (40 points). Assume that you have a client that is a paper manufacturer and they have expressed concern that the government will pass a new regulation banning the use of chlorine-based technologies within their manufacturing process. If the firm were certain that the regulation would pass they would take proactive remedial action now (at a cost of $500K) and introduce a newer, compliant technology. They don't want to spend the $500K if they don't have to. If they don't act now, believing that the government will not change the regulation, and end up being wrong then they will find themselves changing their manufacturing process from a reactive position and the cost for getting in compliance will be $850K, much greater than the $500K. Currently, the company's best guess that the government will pass the new regulation is 20%. As a consultant in this area your first instinct is to see if you can get more information on the likelihood of the government moving forward and making a change. Some research informs you that there are two firms available with expertise in forecasting regulatory policy as it relates to the papermaking industry. Firm A charges $80K for a study and their record is perfect. In the past, whenever Firm A has predicted that the government would introduce a more stringent regulation the prediction always came true and for those times that Firm A predicted that no new regulation would occur, none has occurred. If Firm A were to predict a change then your client would immediately undertake proactive remedial action and if Firm A predicted no change they would maintain the current manufacturing process. Another firm, Firm B, has a much lower fee, charging only $20K but their predictive performance has not been perfect. In the past, Firm B has predicted government policy for passing new regulations with a ninety percent accuracy (i.e. for those times the government introduced a tougher
Expert Answer:
Posted Date:
Students also viewed these general management questions
-
In Exercises 13 through 24, compute the derivative of the given function and find the equation of the line that is tangent to its graph for the specified value x = c. f(x) = -2 X ; c = - 1
-
Annuity Present Values What is the value today of a 15-year annuity that pays $ 650 a year? The annuitys first payment occurs six years from today. The annual interest rate is 11 percent for Years 1...
-
The following table shows the effects of five transactions (1 through 5) on the assets, liabilities, and equity of Mulan's Boutique. Identify the explanation from a through j below that best...
-
Comprehensive Clarenville Kitchen Products produces and sells upscale mixers and breadmakers. In October 2020, Clarenville's budget department gathered the following data to meet budget requirements...
-
The cash account for Capstone Medical Co. at November 30, 2016, indicated a balance of $89,620. The bank statement indicated a balance of $128,660 on November 30, 2016. Comparing the bank statement...
-
Part 2 of 5 O Points: 0 of 20 A local college newsletter reported that the average American college student spends one hour (60 minutes) on a social media website daily. But you wonder if there is a...
-
METER READINGS CURRENT CHARGES Meter Num/She 30002401/6/8"x3/4 Current Rending (07/17/2010) 560.13 Water Service: Previoun Reading (ih15/2018) 547.09 Water Uee CCF 2018 Wale Ued Chaips D14n X 13.04...
-
Folan Ltd operates a standard marginal costing system for the single product it manufactures. The standard selling price of this product is 132 per unit Production and sales of 6000 units are...
-
Titu PLC produces and sells T-shirts. The normal annual production is set for 140.000 pieces. The annual fixed costs are 350.000, the variable cost per piece is 2,75. The T-shirt is sold for 6,25...
-
DELtel (Delmon Telecommunications) is a telecommunications provider who entered the competitive Bahraini market recently. The firm's core objective is to provide high quality ICT services while being...
-
The figure shows four particles, each of mass 50.0 g, that form a square with an edge length of d = 0.400 m. If d is reduced to 0.100 m, what is the change in the gravitational potential energy of...
-
You have decided that you would like to become a bookkeeper or an accountant, however you are unsure whether you have the required skills. To determine this, you must answer the following questions....
-
Journalize the entries for Shore Co for the sale and payment of the amount due For grading purposes, use December 31 as the date for all transactions Refer to the appropriate companys Chart of...
-
Consider the following cash flows in Table P5.5. (a) Calculate the payback period for each project. (b) Determine whether it is meaningful to calculate a payback period for project D. (c) Assuming...
Study smarter with the SolutionInn App