The Alternatives 1 and 2 in the Following Payoff Table

question 36

Essay

The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (S_I)represent the levels of demand for the company products.S₁,S₂ and S₃ characterize high,medium and low demand respectively.The payoff values are in thousands of dollars. The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports showed 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with Medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.
What is the probability that weather conditions are poor,given that the demand is high? What is the probability that weather conditions are poor,given that the demand is medium? What is the probability that weather conditions are poor,given that the demand is low?

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Definitions:

Payback Period

The length of time required to recover the cost of an investment, calculated by dividing the initial investment by the annual cash flow.

Cash Flows

The total amount of money being transferred into and out of a business, affecting the company's liquidity.

Internal Rate

The rate of return that makes the net present value (NPV) of all cash flows from a particular project equal to zero, often used in capital budgeting to assess potential investments.

Cash Flows

The entire sum of money flowing in and out of an enterprise, notably affecting its ability to meet short-term obligations.