Chace Shipping

Assignment Submitted By : 1. Rajan Gupta (Roll Number EPGP-05-141)

Decision Tree ( attached as separate excel sheet)

Chace Shipping
Data of Chace shipping Round trip Time for any of his freighters = 2months (approx) Cost of round trip = $400,000 (in insurance, supplies, and other operating expenses, over the above cost of having the ship lie idle in port) Chace capacity limit in ordinary cases = 55 cu. ft. per ton A rare exception to 55 cu. ft. per ton rule for = bulk grain. Although it occupied a disproportionate amount of volume for its weight

The Glory
Capacity of ship = 22,000 tons and/or 1,316,000 cu. ft. (approximately 60 cu. ft. per ton) of cargo. Condition = fully depreciated some years before, Chace felt that she had at least five more years of useful life. dry-dock squeeze also meant that should the Glory not take up either of the options described below, any slack time the Glory had before her dry-dock date would have to be spent lying idle in the New York Harbor, where she was currently anchored DECISION OPTIONS A. Steel is shipped B. Grains are shipped C. No shipping wait for dry dock EMV CALCULATIONS:A) If Steel is Shipped: Rate $35 per ton First lowest bidder allocation:- 20000 ton 2nd Lowest bidder allocation:- 10000 ton Probability of first lowest =25% Probability of second Lowest=75% Cost of round trip = $400,000

EMV for steel shipping:EMV = 0.25 * 3,00,000 + 0.75 * (-50,000) = $37,500

B) If Grains are Shipped: $18.00 per ton = barley and $21.60 per ton = oats carried;( the only stipulation was that if Chace decided to ship barley, at least 15,000 tons would have to be shipped) Chace was most reluctant to carry cargo which occupied more than 55 cu. ft. per ton, and that barley required 56 cu. ft. per ton and oats 70 cu. ft. per ton i)Ship After Undertaking Modifications for Adding Capacity EMV for grain shipping after modification Using input from solver output as well as case document EMV= $4,17,500 + $3,599 - $400,000 - $15,000 =$6,099

ii)Ship Without Adding Capacity EMV for grain shipping without modification EMV=Profit/Loss = $4,17,500 - $400,000) =$17,500

CONCLUSION As penalties are high and further probability to lose in bidding is high, we can consider safe option: i.e following

Shipping grains without modification shall earn $ 17500