Reference no: EM131831758

Ken Brown is the principal owner of Brown Oil Inc. Because of the competition, he is considering investing into some equipment for his company. His alternatives are: (a) Sub100, that will make him $400,000 in proft in a good market, or suffer a loss of $300,000 in an unfavorable market: (b) OilerJ, that will bring a proft of $350,000 in a good market, or a loss of -$200,000 in a bad market: and, (c) Texan, that will bring a profit of $85,000 in a good market, or a loss of -$28,000 in a bad market. (a) Develop a payoff table for this decision making. (b) Ken has always been a very optimistic decision maker. What decision criterion should he consider to decide on the piece of equipment? What altermative will he select? (c) Ken's brother, Ben, is vice president of finance, and he is credited with making the company a financial success. He attributes his success on his pessimistic attitude about business and the oil industry. What criterion would Ben use, and what alternative will he select? (d) The latest oil ndustry newsletter states that the changes of a favorable market for oil products is 70%. Ken would like to use this probability to determine the best decision. Draw the decision tree to represent this decision making. (e) Perform the necessary calculations to determine the optimal decision, given the pr of favorable/unfavorable market.