Transrail Is Bidding on a Project That It Figures Will

question 34

Essay

Transrail is bidding on a project that it figures will cost $400,000 to perform. Using a 25% markup, it will charge $500,000, netting a profit of $100,000. However, it has been learned that another company, Rail Freight, is also considering bidding on the project. If Rail Freight does submit a bid, it figures to be a bid of about $470,000. Transrail really wants this project and is considering a bid with only a 15% markup to $460,000 to ensure winning regardless of whether or not Rail Freight submits a bid.
a.
Prepare a profit payoff table from Transrail's point of view.
b.
What decision would be made if Transrail were conservative?
c.
If Rail Freight is known to submit bids on only 25% of the projects it considers, what decision should Transrail make?
d.
Given the information in (c), how much would a corporate spy be worth to Transrail to find out if Rail Freight will bid?

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Definitions:

Multicollinearity

A situation in statistics where two or more independent variables in a multiple regression analysis are closely related, potentially leading to skewed outcomes.

Regression Models

Statistical models used to estimate the relationships among variables, often used to predict a dependent variable based on one or more independent variables.

Collinearity

A statistical phenomenon in which two or more predictor variables in a multiple regression model are highly correlated, potentially leading to unreliable estimates of the coefficients.

Intercorrelation

A statistical correlation between two or more variables or sets of data.