Decisions under certainty

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Reference no: EM133469

QUESTION 1

(a) Decision making is an essential part of the management process.
Comment.

(b) Distinguish between ‘decisions under certainty' and ‘decisions under uncertainty'.

QUESTION 2

A pensioner wants to invest upto an amount of Rs30,000 in fixed income securities. His dealer recommends investing in two bonds: Bond A yielding 7% and Bond B yielding 10%. After some deliberation, he decides to invest at most Rs 12,000 in Bond B and at least Rs 6,000 in Bond A. He also wants the quantity invested in Bond A to be at least equal to the amount invested in Bond B.

What should the broker suggest if the investor wants to maximize his return on investment? Solve graphically.

QUESTION 3

A Research Organisation has to decide whether to develop a new product, prototype A, or to keep the existing creation B. After discussions, it was agreed that the following scoring model would be helpful:

(a) Using an appropriate method, evaluate the model and indicate whether your results support the case for developing a new product prototype A or developing the existing product B.

(b) It has been agreed that the last two factors are of more importance.

Evaluate the model again, but this time give ‘product life expectancy' aweighting of 3 and ‘expected returns' a weighting of 2
Comment on your results.

QUESTION 4

A stockist of a particular commodity makes a profit of Rs 30 on each sale made within the same week of purchase, otherwise he incurs a loss of Rs 30 on each item. The data on the past sales are given below:
No. of items sold within the same week 5 6 7 8 9 10 11 Frequency 0 9 12 24 9 6 0

(a) Calculate the optimum number of items the stockist should buy every week in order to maximize the profit.

(b) Calculate the expected value of perfect information.

QUESTION 5

A company uses components at the rate of 500 a month which are bought at the cost of £1.20 each from the supplier. It costs £ 20 each time to place an order, regardless of the quantity ordered.

The total holding cost is made up of the capital cost of 10% per annum of the value of stock plus 3p per item per annum for insurance plus 6p per item per annum for storage plus 3p per item for deterioration.
If the lead time is zero, determine:

(a) the number of components the company should order

(b) the frequency of ordering

Reference no: EM133469

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