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 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. For this payoff table find Transrail's optimal decision using (1) the pessimistic approach, (2) the optimistic approach, and (3) minimax regret approach.
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), what is EVPI?