Case Study For Models & Decision

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CASE STUDY -- STRENLAR A report submitted for the student project under the course SEEM 5820/ECLT5920 ABSTRACT Life is full of hard decisions which always make people scratch their heads. In this case study—Strenlar, Fred Wallace is faced with some alternatives which are difficult for him to choose. Our task is helping Fred to make it easier for him to make a decision. By using the theory and methodologies introduced in the textbook, Making Hard Decisions, and some software, we will structure the problem, model Fred’s decisions, use three set of data to test Fred’s decision model, carry out a sensitivity analysis on different variables as well as risk tolerance, and refine the model. At last, we conclude some advice for Fred to make a decision. TABLE OF CONTENTS CHAPTER 1 INTRODUCTION 4 1.1 Background of Project 4 1.2 Objective 5 1.3 Methodology 6 1.4 Project Outline 6 CHAPTER 2 Complete Analysis of Fred’s Decision 7 2.1 Assumptions 7 2.2 Building Model for Fred’s Decision 7 2.2.1 Influence Diagram 7 2.2.2 Decision Tree 8 2.3 Base Value Set of Assumptions 9 2.3.1 Solving Decision Tree 9 2.3.2 Risk Profiles for Every Possible Result 9 2.4 High Value Set of Assumptions 11 2.4.1 Solving Decision Tree 11 2.4.2 Risk Profiles for Every Possible Result 11 2.5 Low Value Set of Assumptions 12 2.5.1 Solving Decision Tree 12 2.5.2 Risk Profiles for Every Possible Result 13 CHAPTER 3 Sensitivity Analysis 14 3.1 Base Value Assumptions 14 3.2 Sensitivity Analysis 14 3.2.1 Interest Rate Used to Calculate Net Present Value 14 3.2.2 Legal Fees 18 3.2.3 Eventual Price of PI’s Stock 19 Eventual Price of PI’s Stock if Project Succeeds 20

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