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Unformatted text preview: 1 CHAPTER 22 SECTION 1: DECISION ANALYSIS MULTIPLE CHOICE 1. A medical doctor is involved in a $2 million malpractice suit. He can either settle out of court for $500,000 or go to court. If he goes to court and loses, he must pay $1,750,000 plus $250,000 in court costs. If he wins in court the plaintiffs pay the court costs. Identify the actions of this decision-making problem. a. Two choices: (1) go to court and (2) settle out of court. b. Two choices: (1) win the case in court and (2) lose the case in court. c. Four consequences resulting from Go/Settle and Win/Lose combinations. d. The amount of money paid by the doctor. ANS: A PTS: 1 REF: SECTION 22.1 2. A tabular presentation that shows the outcome for each decision alternative under the various states of nature is called a: a. payback period matrix. b. decision matrix. c. decision tree. d. payoff table. ANS: D PTS: 1 REF: SECTION 22.1 3. Which of the following would be considered a state of nature for a business firm? a. Inventory levels b. Salaries for employees c. Site for new plant d. Worker safety laws ANS: D PTS: 1 REF: SECTION 22.1 4. Which of the following would not be considered a state of nature for a business firm? a. Federal Reserve regulations b. Food and Drug Administration regulations c. The number of employees to hire d. Minimum wage regulations ANS: C PTS: 1 REF: SECTION 22.1 5. A payoff table lists the monetary values for each possible combination of the a. mean and median. b. mean and standard deviation. c. event (state of nature) and act (alternative). d. None of these choices. ANS: C PTS: 1 REF: SECTION 22.1 2 6. A company that manufactures tennis racquets is contemplating whether to increase its advertising budget by $2 million for next year. If the expanded advertising campaign is successful, the company expects sales to increase by $3.2 million next year. If the advertising campaign fails, the company expects sales to increase by only $800,000 next year. If the advertising budget is not increased, the company expects sales to increase by $400,000. Identify the possible outcomes in this decision-making problem. a. Two choices: (1) increase the budget and (2) do not increase the budget. b. Two choices: (1) campaign is successful and (2) campaign is not successful. c. Four consequences resulting from the Increase/Do Not Increase and Successful/Not Successful combinations. d. The increase in sales dollars next year. ANS: C PTS: 1 REF: SECTION 22.1 7. Which of the following is true? a. The process of determining the EMV decision is called the rollback technique . b. We choose the act that produces the smallest expected opportunity loss (EOL) c. The EMV decision is always the same as the EOL decision....
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This note was uploaded on 09/28/2010 for the course FINOPMGT 250 taught by Professor Kumar during the Spring '10 term at University of Massachusetts Boston.
- Spring '10