Analytical Techniques
Rutgers University
International EMBA Program
Beijing, December 2007
 

Homework Assignment 2

Read the Freemark Abbey case in the back of the coursepack.  I interpret the text as stating that if the storm does not strike, there is 40% chance of getting $3.50/bottle wholesale, a 40% chance of getting $3.00/bottle wholesale, and a 20% chance of getting $2.50/bottle wholesale. Assume that if the storm strikes but there is no botrytis mold, you will sell the wine for $2.00/bottle wholesale.

1. From an expected monetary value (EMV) standpoint, should you harvest before the storm or not? Show your work in the form of a decision tree analysis.  You may either work the problem by hand or use the TreePlan add-in.
    
2. Briefly discuss whether you think that the winery should use the EMV criterion to make this decision, or should be more conservative because of the risks involved.

Finally, read the Merck and Company case in the back of the coursepack.  For Merck, however, you do not have to solve the problem or hand in any work.  We will solve this problem in class on Saturday, but it will take too long to read in class.