1. Part B: Financial Plan
Plan 1
State of Nature
Decision Competitive Foreign Conditions Poor Competitive
($) Conditions ($)
Expand 800,000 500,000
Maintain status quo 1,300,000 -150,000
Sell now 320,000 320,000
Maximax
State of Nature
Competitive Poor Competitive Maximax
Decision Foreign Conditions Conditions
Expand $800,000 $500,000 800,000
Maintain status quo 1,300,000 -150,000 1,300,000
Sell now 320,000 320,000 320000
According to Maximax, the decision maker should make a decision on maintain status quo.
Maximin
State of Nature
Competitive Foreign Poor Competitive Maximin
Decision Conditions Conditions
Expand $800,000 $500,000 500000
Maintain status 1,3000,00 -150,000 -150000
quo
Sell now 320,000 320,000 320000

2. According to Maximin, the decision maker should make a decision on expand the market.

3. Minimax Regret Approach
State of Nature
Competitive Poor Minimax
Decision Foreign Competitive regret
Conditions Conditions
Expand $800,000 500000 $500,000 0 500000
Maintain status 1,3000,00 0 -150,000 650000 650000
quo
Sell now 320,000 980000 320,000 180000 980000
According to Minimax regret approach, the decision maker should make a decision to expand
their market.
Hurwicz @ Criterion of Realism
Alternatives Competitive Poor Criterion of realism
Foreign Competitive
Conditions Conditions
D1 500000 0 (0.3)(500000)+(0.7)(0)=150000
D2 0 650000 (0.3)(650000)+(0.7)(0)=195000
D3 980000 180000 (0.3)(980000)+(0.7)(180000)=420000
According to Hurwicz, the decision maker should make a decision of selling the business.
Expected Opportunity Loss Approach
Alternatives CFC (0.7) PCC (0.3) EOL
D1 500000 0 (500000)(0.7)+(0)(0.3)= 350000
D2 0 650000 (0)(0.7)+(650000)(0.3)=195000
D3 980000 180000 (980000)(0.7)+(180000)(0.3)=740000
According to expected opportunity loss approach, the decision maker should make a decision
upon maintain status quo for the business.
Expected Value Approach

4. Alternatives CFC(0.7) PCC(0.3) EV
D1 $800,000 $500,000 (800000)(0.7)+(500000)(0.3)=710000
D2 1,3000,00 -150,000 (1300000)(0.7)+(-
150000)(0.3)=865000
D3 320,000 320,000 (320000)(0.7)+(320000)(0.3)=320000
According to Expected Value approach, the decision maker should make a decision upon
maintain status quo for the company.
Expected value of perfect Information
EVwPI= (1300000)(0.7)+(500000)(0.3)= 1060000
EVPI = EVwPI – EvwoPI
EVPI = 1060000- 865000
= 195000

5. Plan 2
Stock Price Change Probability Cumulative Interval of random
($) Probability number
-2 0.05 0.05 0-5
-1 0.10 0.15 6-15
0 0.25 0.40 16-40
+1 0.20 0.60 41-60
+2 0.20 0.80 61-80
+3 0.10 0.90 81-90
+4 0.10 1.00 91-100
Random 0.1091 0.9407 0.1941 0.8083
numbers
Price Per share -1 +4 0 +3
Average stimulated price per share= 6/3= 2
Random 0.2540 0.7144 0.0563 0.0125
numbers
Price Per share 0 +2 -1 -2
Average stimulated price per share = -1/3 = -0.33