Question

"Valley Fields Inc" , a producer of fresh fruit and fruit-based products, has been losing market share in recent years. The decision alternatives that the firm is considering are Sell the Firm, Keep as is, Improve Genetics, Turn to Organic, Diversify Business. The company can be sold for $9 as of today. For the other alternatives, net present values (payoffs) were estimated under two economic conditions: growth and recession. Keeping things unchanged would generate $10 payoff under growth and $8 under recession. Improving genetics would make products more affordable and delicious but "processed", so the firm estimates $10 payoff under growth and $9 under recession. Turning to organic offers healthier, more profitable, but more expensive products; it would generate $18 under growth and $-2 ($2 loss) under recession. Finally, diversifying would generate average payoffs; $12 under growth and $7 under recession. The probability of economic growth is 0.4.

Construct the payoff table and obtain the Optimal Decision and Expected Value. Show work below

Conduct a sensitivity analysis using Excel's Data Table, with similar columns to the ones we developed in class:

First column: Prob of Economic Growth, with values ranging from 0 to 1 by .1 increments

Second column: Optimal Decision

Third column: Expected Value

Place Table below.

Answer 1

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