Case Study

868 words - 4 pages

1. Draw a detailed decision tree for Jaeger’s Decision. What should Jaeger do?
As we know from the case, “the cost to the winery was about the same for each of the possible styles of wine”. If there is a 50 percent chance of the rainstorm coming, there is a 40 percent chance warm, light rain that allows the grapes to grow the botrytis mold. This wine can be sold for $8.00 per bottle. However, juice volume is reduced to 70 percent during the production.
Cold and heavy rain has a 60 percent likelihood of occurring and this would result in the berries swelling by 5-10 percent, decreasing their concentration. This will result in the least desirable grape quality that can only be sold for ...view middle of the document...

85x1000x12 = $34,200
Based on this information and the Decision Tree (Exhibit 1), my recommendation to Jaeger is to hold off on harvesting at this time as it offers higher quality possibilities and increased potential ROI.
2. How confident are you of your recommendation? If you have some uncertainty about the course of action you are recommending, what factors are contributing to that uncertainty?
I am 75% confident in this recommendation. One of the most significant variables presented in the case, is the probability of the botrytis mold forming. The highest potential ROI is projected to come from wine made from grapes that feature the mold. In the event that the mold does not form, Jaeger would be left with options of $3.50 or lower. This would result in the value of the option to harvest now would automatically increase
3. How much would the market price of wine made from harvesting the grapes now have to change for you to change your recommendation for Mr. Jaeger’s decision? Why?
If the market price of the wine that resulted from harvesting now were to exceed $3.50, I would revisit my recommendation to Mr. Jaeger as the difference in potential price compared to the “harvest now” price would be considerably reduced. The fact that the “harvest now” price comes with little or no risk would also increase its attractiveness.
4. How much would the probability of a storm have to change for you to change your recommendation? Why?
The probability of a storm would have to drop below 35%...

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