SIMON FRASER UNIVERSITY

BEEDIE SCHOOL OF BUSINESS

BUS 336 D100/D300 Data & Decisions II
Note: This is an individual assignment. Identical assignments will receive a
mark of 0.

Due: Friday, Feb 6th at 5:00pm. (Both Sections).

The Burnaby D100 Drop box is located on 4th floor of WMC.
The Surrey D300 Drop box located on 5th floor of Surrey.

BOTH hardcopy and electronic requirements must be received by the due date
or you will receive zero marks. No late papers will be accepted. The drop box
will be cleared immediately after the deadline and not checked again. Please
make sure to submit it into the correct drop box (it is labelled with the course
number, section and Mike’s name). Assignments submitted to the wrong
dropbox will not be accepted (i.e., will receive zero marks).

Hardcopy Submission Requirements: All work must be clearly documented

and neat or marks will be deducted. All Excel work should be copied into a
Word document before being printed. All decision trees from Treeplan.xla
must be formatted so that they fit on one page only (please see pages 4 and 5
of this assignment for formatting tips). Final statements for all questions are
necessary or marks will be deducted. Please attach a cover sheet to the front
of your assignment. The cover sheet is posted in Canvas in the “Assignment”
folder.

Electronic Submission Requirements: Your electronic files, including both Excel

and Word files, must also be submitted. Please use a separate worksheet in
Excel for each question and label them respectively. Please type your last
name followed by your first name in “Subject” line of the email (ie Johnson,
Michael) when emailing your work so we can easily identify you. Please make
sure your Excel is logically organized and neat. Email your electronic files (by
the submission deadline) to:
• D100 (Burnaby) Students: bus336d100@gmail.com
• D300 (Surrey) Students: bus336d300@gmail.com

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Question 1
A buyer at Best Buy electronics is trying to decide how many wearable technology devices to
purchase from a company called “Muse” for the upcoming Winter Holiday Season. The problem being
is that the product is apparently high in demand and it will take 4 months to fill any orders placed
with the company. Most importantly, the product has no known demand characteristics because it
is has never previously been sold at Best Buy. According to company purchasing procedures, Best
Buy has a policy to execute purchasing decisions by looking at demand profiles for products with
similar technology characteristics. The buyer has been requested to make the purchasing decision
for the new product using the following demand characteristics of similar innovative products sold
by Best Buy:

Demand (in pairs) 100 200 300 400 500 600 700 800 900 1000
Probability 0.050 0.075 0.100 0.150 0.200 0.175 0.100 0.075 0.050 0.025

Best Buy has negotiated the cost of the device for $185 per unit and intends to sell the product for
$295. There is the possibility that the wearable technology device will not be successful and any
remaining unsold units after the holiday season will be liquidated using a blow-out sale in the Spring
for $115 each. The buyer also knows that in previous years when demand for new electronic
products exceeded supply, there was a cost to business through loss of future sales, good will, etc.
Assuming the demand and costing information above is accurate, answer the following questions by
developing a spreadsheet model using Excel (do not use paper and pencil):
a. Construct the payoff table. Use an estimated additional cost (loss) of $20.00 per device
whenever demand exceeds supply.
b. What decision should be made according to the maximax decision rule?
c. What decision should be made according to the maximin decision rule?
d. What decision should be made according to the EMV decision rule?
e. What decision should be made according to the minimax regret decision rule?
f. What decision should be made according to the EOL decision rule?
g. How much should the buyer be willing to pay to obtain a demand forecast that is 100%
accurate?

Note: Please demonstrate several example calculations of the cells in your payoff table on your
hardcopy submission so we can quickly understand how you calculated your payoff table. Please
make sure to have a concluding statement for each of the above decision rules or marks will be
deducted.

Question 2:
The owner of a BC Company called “WEEDS” is considering the purchase of the largest marijuana
production facility that is currently up for sale in Calgary Alberta. The production of marijuana in
Canada is poised to become a multi-billion dollar business over the next several years if the product
becomes legalized for sale beyond medicinal purposes. The debate over the legalization of
purchasing marijuana in Alberta is scheduled to be decided in a referendum in 6 months from now.
Currently, Alberta polls indicate an 80% chance the referendum will be passed by the voters.

The sale of the production facility is to be determined at a sealed bid auction next week. The owner
of WEEDs estimates that if he bids $900,000, there is a 25% chance that he will obtain the facility; if
he bids $1.35 million, there is a 45% chance that he will obtain the facility; and if he bids $1.75 million,
there is an 85% chance that he will obtain the facility. If he acquires the production facility and the
referendum passes, he estimates to make $2.2 million in profit during the first year of operation.
However, if the referendum fails, he expects to make only $250,000 in profit during the first year of
operation.

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Please complete the following to help the owner of WEEDs with his decision making strategy:
a) Using Treeplan.xla, create a decision tree for this problem using a 1 year time boundary.
Provide a clear statement of the optimal decision strategy according to the EMV decision
criterion.
b) State the risk profile of the optimal decision strategy in part a).
c) Create a sensitivity table using Data Tables in Excel to show how the optimal decision may
change if the probability of the referendum passing varies from 0% to 100% in steps of 10%.
Be sure to provide a statement saying what the sensitivity table means in the context of the
decision problem.
d) Develop a second sensitivity table showing how the overall optimal decision may change if
the referendum passes and if profits of the new production facility varies from $2 to $3
million dollars in steps of $100,000. Again, state what the sensitivity table means.

Question 3
Part I:
A group of radiologists are considering opening a private imaging center in downtown Vancouver,
offering imaging services such as CAT scans and MRIs. If the federal government liberalizes access
to private services, the radiologists have estimated a net profit of $100,000 in the first year of
operation. If the government tightens access, they have an estimated a loss of $60,000 in the first
year. Of course, they do not need to proceed at all, in which case there is no cost. In the absence of
any data on changing political guidelines, the best the radiologists can guess is that there is a 50-50
chance the clinic will be successful.
a) Draw a decision tree by hand to help analyze this problem. Using the EMV decision criterion,
what the radiologists do?

Part II:
The radiologists have been approached by a research firm that offers to perform a research study of
trends in government health care decisions for a fee of $10,000. The market researchers claim that
their experience enables them to make the following statements of probability:
Probability of a favourable research study AND a favourable market = 0.55
Probability of a favourable research study AND a unfavourable market = 0.15
Probability of a unfavourable research study AND a favourable market = 0.03
Probability of a unfavourable research study AND a unfavourable market = 0.27
b) Develop a second decision tree for the radiologists to reflect this new option of hiring the research
firm prior to the possibility of opening the imaging center. Draw this decision tree by hand and
evaluate it using the EMV decision criterion.
c) Provide a concluding statement with respect to the radiologists’ decisions.
d) Use Treeplan to evaluate the decision tree in part b). Print it out and include it with your
submission.

Hint: It should be understood that “favourable market” implies that the government will liberalize
access to private clinics and “unfavourable market” implies the government will tightens access to
private clinics.

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Formatting Tips for Assignment #1

Working between Excel and Word

One way to format your payoff table or decision tree is to copy it in Excel and paste it into Word as a
picture that can be modified in terms of its size. This is a great way to format data produced in Excel and
incorporated into a report in Word.

1. Highlight your decision tree (or payoff table) with your mouse in Excel and select copy
2. Open Word and select Paste (more arrow) and then Paste Special

3. Select “Picture (Enhanced Metafile)” and press Okay.

4. You will now be able to select the corner of the pasted picture and modify its size so that it is
legible and clear to the reader.

If you are only trying to print to out a large decision tree so that it fits on one page, an alternative
approach is to do this solely in Excel:

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Working within Excel
In Excel, go to File -> Print -> and select Page Setup

In Page Setup, Select Fit to: 1 page wide by 1 tall

Select The above shows the decision tree is now formatted on 1 page.

Happy formatting!

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