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?