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A company is considering whether it should tender for two contracts (C1 and C2) on offer from a government department for the supply of certain components. If tenders are submitted, the company will have to provide extra facilities, the cost of which will have to be entirely recouped from the contract revenue. The risk, of course, is that if the tenders are unsuccessful then the company will have to write off the cost of these facilities. The extra facilities necessary to meet the requirements of contract C1 would cost $60000. These facilities would, however, provide sufficient capacity for the requirements of contract C2 to be met also should the tender be for both C1 and C2. . In addition, the production costs for C1 would be $20000. If a tender is made for contract C2 only, then the necessary extra facilities can be provided at a cost of only $30000. The production costs in this case would be $15000. (The production costs for contract C2 would be $12000 if the tender is for both C1 and C2.). It is estimated that the tender preparation costs would be $3000 if tenders are made for contracts C1 or C2 only and $4000 if a tender is made for both contracts C1 and C2. For each contract, possible tender prices have been determined. In addition, subjective assessments have been made of the probability of getting the contract with a particular tender price as shown below. Note here that the company can only submit one tender and cannot, for example, submit two tenders (at different prices) for the same contract. Possible Tender Price ($) Prob. of Winning Contract Tendering for C1 only 150000 0.35 140000 0.75 Tendering for C2 only 100000 0.15 90000 0.70 80000 0.85 Tendering for C1 and C2 200000 0.10 160000 0.75 120000 0.80 In the event that the company tenders for both C1 and C2 it will either win both contracts (at the price shown above) or no contract at all. With the aid of a decision tree prepare a quantitative report advising the company on the best course of action.

A company is considering whether it should tender for two contracts (C1 and C2) on offer from a government department for the supply of certain components. If tenders are submitted, the company will have to provide extra facilities, the cost of which will have to be entirely recouped from the contract revenue. The risk, of course, is that if the tenders are unsuccessful then the company will have to write off the cost of these facilities. The extra facilities necessary to meet the requirements of contract C1 would cost $60000. These facilities would, however, provide sufficient capacity for the requirements of contract C2 to be met also should the tender be for both C1 and C2. . In addition, the production costs for C1 would be $20000. If a tender is made for contract C2 only, then the necessary extra facilities can be provided at a cost of only $30000. The production costs in this case would be $15000. (The production costs for contract C2 would be $12000 if the tender is for both C1 and C2.). It is estimated that the tender preparation costs would be $3000 if tenders are made for contracts C1 or C2 only and $4000 if a tender is made for both contracts C1 and C2.

For each contract, possible tender prices have been determined. In addition, subjective assessments have been made of the probability of getting the contract with a particular tender price as shown below. Note here that the company can only submit one tender and cannot, for example, submit two tenders (at different prices) for the same contract.

Possible Tender Price ($) Prob. of Winning Contract Tendering for C1 only 150000 0.35 140000 0.75 Tendering for C2 only 100000 0.15 90000 0.70 80000 0.85 Tendering for C1 and C2 200000 0.10 160000 0.75 120000 0.80

In the event that the company tenders for both C1 and C2 it will either win both contracts (at the price shown above) or no contract at all. With the aid of a decision tree prepare a quantitative report advising the company on the best course of action.