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Atlantis Aquatic, Inc. (AAI) is considering its bidding strategy for a US Navy (USN) contract. Because of the specialized type of contract, there is only one other contractor currently approved to submit a bid, Trident Watercraft Inc. (TWI). The USN determines bid eligibility after an extensive investigation, and is, therefore, unlikely to approve any other contractors in the near future.

Since there is a repetitive nature in such bids, AAI usually has special meetings to consider bidding strategy. They are considering two options: bidding high or bidding low. Marketing Director Jim Beam explained the logic behind the options as follows:

Our companys policy is to bid every time, whereas Tridents policy is to bid only 50 percent of the time. And we have only two choices: a high bid or a low bid. If we bid high and Trident doesnt bid, we are awarded the contract and make $2.2 million profit. But if Trident bids, then we might get the bid or we might not, depending on their bidding level. All in all, our profit, when we place a high bid and Trident bids as well, averages out to zero. If we place a low bid, our per-bid profit averages out to $800,000, regardless of Tridents action.

Harry Joseph, AAIs director of finance, thought for a few moments. If what you say is true, it seems that we should bid high whenever our competitor doesnt bid and low whenever they do.

Exactly, replied Mr. Bean. But, said Harry, how can we find out what Trident might do? We could try to buy this information from someone at Trident, but not only is that unethical, it is probably illegal as well.

Wait a minute, said Mr. Bean. Suppose it was legal; how much should we offer for such information if it were 100 percent reliable?

Thats a good question, replied Mr. Bigdome, the companys president. It seems to me; however were getting off the track. What do you propose we do, Jim?

We could use an expected value approach to solve this problem, said Mr. Bean, but that approach would assume that Trident will behave in the future as they behaved in the past, and how can we make such an assumption? How can we know what theyll do?

Well, said the president, weve tried before to predict their moves. Contract Research Inc. (CRI) has provided such information before at a cost of $200,000 a shot. Their track record is isnt bad: 30 times that Trident bid Contract Research Inc. (CRI) predicted it correctly 26 times. On the other hand, of the 20 times that Trident didnt bid. CRI called it right 18 times. What are you saying, Mr. Bigdome, said Harry, is that the research company isnt 100 percent reliable.

You may infer that, but Contract Research (CRI) is still considered the best research company available in this market. Its getting late and we have to make a decision.

Required: You are Harry Josephs top assistant and he has handed this analysis to you. He specifically tells you that he wants a professionally prepared report using Tree Plan and that it has to be in his hand or in his mailbox no later than 10:25 a.m. on Monday February 27/28, 2017. Your report should include but not be limited to: What is the best course of action and what the offer should be if they could purchase the inside information as to what TWI will do? SOLVE USING A TREE PLAN!