MGT:206

ASSIGNEMNT 1
Submission Date: 5th of August,2020 before 11:59pm
Total: 25

1.Business analytics is a data-driven approach to decision making that allows companies to make
better decisions. Do you agree with this statement or not and why? 5 [Not more than 200
words]

2. Mr. has always been proud of his personal investment strategies and has done very well over the
past several years. He invests primarily in the stock market. Over the past several months, however,
X has become very concerned about the stock market as a good investment. In some cases, it would
have been better for Mr.X to have his money in a bank than in the market. During the next year, Mr.
X must decide whether to invest $10,000 in the stock market or in a certificate of deposit (CD) at an
interest rate of 9%. If the market is good, Mr.X believes that he could get a 14% return on his
money. With a fair market, he expects to get an 8% return. If the market is bad, he will most likely
get no return at all—in other words, the return would be 0%. Mr. X estimates that the probability of
a good market is 0.4, the probability of a fair market is 0.4, and the probability of a bad market is
0.2, and he wishes to maximize his long-run average return.
(a) Develop a decision table for this problem.
(b) What is the best decision? 5

3. Mr.X is thinking about producing a new type of electric razor for men. If the market were
favorable, he would get a return of $100,000, but if the market for this new type of razor were
unfavorable, he would lose $60,000. Since Mr.Y is a good friend of Mr.X , Mr.X is considering the
possibility of using Bush Marketing Research to gather additional information about the market for
the razor. Mr.Y has suggested that Mr.X use either a survey or a pilot study to test the market. The
survey would be a sophisticated questionnaire administered to a test market. It will cost $5,000.
Another alternative is to run a pilot study. This would involve producing a limited number of the
new razors and trying to sell them in two cities that are typical of American cities. The pilot study is
more accurate but is also more expensive. It will cost $20,000. Mr.Y has suggested that it would be a
good idea for Mr.X to conduct either the survey or the pilot before Mr.X makes the decision
concerning whether to produce the new razor. But Mr.X is not sure if the value of the survey or the
pilot is worth the cost. Mr.X estimates that the probability of a successful market without
performing a survey or pilot study is 0.5. Furthermore, the probability of a favorable survey result
given a favorable market for razors is 0.7, and the probability of a favorable survey result given an
unsuccessful market for razors is 0.2. In addition, the probability of an unfavorable pilot study given
an unfavorable market is 0.9, and the probability of an unsuccessful pilot study result given a
favorable market for razors is 0.2.
(a) Draw the decision tree for this problem without the probability values.
(b) Compute the revised probabilities needed to complete the decision, and place these values in
the decision tree.
(c) What is the best decision for Mr.X ? Use EMV as the decision criterion. 5
 4. CASE STUDY
10

Starting Right Corporation

After watching a movie about a young woman who quit a successful corporate career to start her own
baby food company, Julia Day decided that she wanted to do the same. In the movie, the baby food
company was very successful. Julia knew, however, that it is much easier to make a movie about a
successful woman starting her own company than to actually do it. The product had to be of the highest
quality, and Julia had to get the best people involved to launch the new company. Julia resigned from
her job and launched her new company—Starting Right. Julia decided to target the upper end of the
baby food market by producing baby food that contained no preservatives but had a great taste.
Although the price would be slightly higher than for existing baby food, Julia believed that parents would
be willing to pay more for a high-quality baby food. Instead of putting baby food in jars, which would
require preservatives to stabilize the food, Julia decided to try a new approach. The baby food would be
frozen. This would allow for natural ingredients, no preservatives, and outstanding nutrition. Getting
good people to work for the new company was also important. Julia decided to find people with
experience in finance, marketing, and production to get involved with Starting Right. With her
enthusiasm and charisma, Julia was able to find such a group. Their first step was to develop prototypes
of the new frozen baby food and to perform a small pilot test of the new product. The pilot test received
rave reviews. The final key to getting the young company off to a good start was to raise funds. Three
options were considered: corporate bonds, preferred stock, and common stock. Julia decided that each
investment should be in blocks of $30,000. Furthermore, each investor should have an annual income of
at least $40,000 and a net worth of $100,000 to be eligible to invest in Starting Right. Corporate bonds
would return 13% per year for the next 5 years. Julia furthermore guaranteed that investors in the
corporate bonds would get at least $20,000 back at the end of 5 years. Investors in preferred stock
should see their initial investment increase by a factor of 4 with a good market or see the investment
worth only half of the initial investment with an unfavorable market. The common stock had the
greatest potential. The initial investment was expected to increase by a factor of 8 with a good market,
but investors would lose everything if the market was unfavorable. During the next 5 years, it was
expected that inflation would increase by a factor of 4.5% each year.

Discussion Questions

1. Sue Pansky, a retired elementary school teacher, is considering investing in Starting Right. She is very
conservative and is a risk avoider. What do you recommend? 2. Ray Cahn, who is currently a
commodities broker, is also considering an investment, although he believes that there is only an 11%
chance of success. What do you recommend? 3. Lila Battle has decided to invest in Starting Right. While
she believes that Julia has a good chance of being Case Study S successful, Lila is a risk avoider and very
conservative. What is your advice to Lila? 4. George Yates believes that there is an equally likely chance
for success. What is your recommendation? 5. Peter Metarko is extremely optimistic about the market
for the new baby food. What is your advice for Pete? 6. Julia Day has been told that developing the legal
documents for each fundraising alternative is expensive. Julia would like to offer alternatives for both
risk-averse and risk-seeking investors. Can Julia delete one of the financial alternatives and still offer
investment choices for risk seekers and risk avoiders? Word limit:
Not more than 300 words
Note:
Risk Avoider
A person who avoids risk. On the utility curve, as the monetary value, the utility increases at a
decreasing rate. This decision maker gets less utility for a greater risk and higher potential
returns.
Risk Seeker
A person who seeks risk. On the utility curve, as the monetary value increases, the utility
increases at an increasing rate. This decision maker gets more pleasure for a greater risk and
higher potential returns.

 If you want to use any reference/s for Q.1 and Q.4, you can use APA or Harvard style
whichever is suited.