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Homework 4 - AHP

Investment 1 is initially ranked first based on expected rate of return and degree of risk. When investment 3 is added, investment 3 is now ranked first, investment 2 second, and investment 1 third based on the expanded pairwise comparison matrices. The addition of investment 3 changes the ranking of the investments relative to each other. BeatTrop Foods is considering merging with one of three companies. Seven important factors are identified. Pairwise comparison matrices are provided for the relative importance of the factors and the performance of each company for each factor. Using AHP, the company that maximizes the weighted performance across all factors should be selected for the merger.

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113 views2 pages

Homework 4 - AHP

Investment 1 is initially ranked first based on expected rate of return and degree of risk. When investment 3 is added, investment 3 is now ranked first, investment 2 second, and investment 1 third based on the expanded pairwise comparison matrices. The addition of investment 3 changes the ranking of the investments relative to each other. BeatTrop Foods is considering merging with one of three companies. Seven important factors are identified. Pairwise comparison matrices are provided for the relative importance of the factors and the performance of each company for each factor. Using AHP, the company that maximizes the weighted performance across all factors should be selected for the merger.

Uploaded by

Andiana Koswara
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Homework 4

Analytic Hierarchy Process (AHP)


1. Taken from “Practical Management Science, by Winston and Albright” Page 373 No. 27
In determining where to invest your money, two objectives, expected rate of return and
degree of risk, are considered to be equally important. Two investments (1 and 2) have the
pairwise comparison matrices shown in Table 7.36.
a. How would you rank these investments?
b. Now suppose another investment (investment 3) is available. The pairwise comparison
matrices for these investments are shown in Table 7.37. (Observe that the entries in
the comparison matrices for investments 1 and 2 have not changed.) how would you
now rank the investments? Contrast your ranking of investments 1 and 2 with your
answer from Part (a).

Table 7.36. Pairwise Comparisons in Investment Problem


Expected Return Investment 1 Investment 2
Investment 1 1 ½
Investment 2 2 1
Degree of Risk Investment 1 Investment 2
Investment 1 1 3
Investment 2 1/3 1

Table 7.37. Expanded Pairwise Comparisons in Investment Problem


Expected Return Investment 1 Investment 2 Investment 3
Investment 1 1 ½ 4
Investment 2 2 1 8
Investment 3 1/4 1/8 1
Degree of Risk Investment 1 Investment 2 Investment 3
Investment 1 1 3 ½
Investment 2 1/3 1 1/6
Investment 3 2 6 1

2. Taken from “Practical Management Science, by Winston and Albright” Page 378 No. 34.
BeatTrop Foods is trying to choose one of three companies to merge with. In making this
decision, seven factors are important:
 Factor 1 : Contribution to profitability
 Factor 2 : Growth potential
 Factor 3 : Labor environtment
 Factor 4 : R&D ability of company
 Factor 5 : Organizational fit
 Factor 6 : Relative size
 Factor 7 : Industry commonality
The pairwise comparison matrix for these factors is as follows:
[ ]

The three contenders for merger have the following pairwise comparison matrices for each
factor:

[ ]

[ ]

[ ]

[ ]

[ ]

[ ]

[ ]

Use AHP to determine the company that BeatTrop should merge with.

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