Alternatives 1 and 2 in the Following Payoff Table Represent

question 18

Essay

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 weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports show 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.If the weather conditions are favorable,determine which manufacturing strategy the company should implement.

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Definitions:

Corporate Earnings And Profits

The measure of a corporation's ability to generate income over its costs and expenses within a specific period.

Return Of Capital

A payment to investors that returns some of their original investment, thus reducing the investor's cost basis in the investment.

Capital Gain

The profit earned from the sale of an asset that has increased in value over its purchase price, often applied to stocks, bonds, and property.

Stockholder Basis

The amount invested in a company's stock, used for tax purposes to determine gain or loss on the sale or disposition of the stock.