Prior to beginning work on this discussion forum, read Chapter 5: Probability and Probability Distributions, and make sure to read and reflect on the “Game
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Prior to beginning work on this discussion forum, read Chapter 5: Probability and Probability Distributions, and make sure to read and reflect on the “Game at McDonald’s” that begins Chapter 5, as it will quickly show you how the concept of probability is applied.
Now, strengthen your understanding of the following concepts and terms. Please define and explain how they are applied. In the first part of your initial post,
• Define probability and probability distribution.
o Provide two industry or organization examples when probability is used.
o Explain how probability is used to make business predictions.
A key aspect of solving real business problems is dealing appropriately with uncertainty. This involves recognizing explicitly that uncertainty exists and using quantitative methods to model uncertainty.
In the second part of your initial post,
• Review Section 5-1, and address the following:
o Explain how to use a flow chart for modeling uncertainty.
o Describe how flow charts work and how it is applied.
• Review Sections 5-2a, 5-2b, and 5-2c, and Example 5.1, “Assessing Uncertainty at Bender Company,” and answer the following questions:
o What is the uncertainty in Example 5.1, and how can it be assessed?
o How were probability rules applied?
o What is a probability tree and how did the probability tree that is depicted in Figure 5.2 help them confront uncertainty?
Discussion 2
Prior to beginning work on this forum, read Chapter 6 of your text, and review and reflect on Sections 6-1, 6-2, 6-3, 6-4, 6-5, and 6-6. Also, review the webpage Using Decision Trees in Finance (Links to an external site.).
Please read the Example 6.1, “New Product Decisions at ACME” in the course text. Next, assume you are CEO of the ACME company. You must decide whether to market a new product. The product is currently part way through the development process, and some fixed development costs have already been occurred.
In your initial post, using the completed Example 6.1, “New Product Decisions at ACME,” apply each of the Elements of Decision Analysis (Section 6-2), and explain how they apply to Example 6.1. Basically, what you are doing is interpreting Example 6.1 and applying it to the elements of decision analysis.
Use the following elements of decision analysis subheadings as you compose your post:
• Problem identification
• Possible decisions
• Possible outcomes
• Probabilities of outcomes
• Payoffs and Costs
• Decision Criterion
• Create a decision tree illustrating the elements of decision analysis
o Refer to Figures 6.5 and 6.6.
Prior to beginning work on this assignment, review Chapter 6: Decision Making Under Uncertainty.
Read Case 6.4, “Developing a Helicopter Component for the ARMY” in your course text.
For Part 1 of this assignment, using an Excel spreadsheet,
• Develop a decision tree to maximize Ventron’s expected monetary value (EMV).
o This includes the revenue from this project, the side benefits (if applicable) from an improved extrusion process, and relevant costs.
o You don’t need to worry about time value of money; that is, no discounting or net present values are required.
• Summarize your findings in words in the spreadsheet.
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