Freemark Abbey Winery
Freemark Abbey Winery
1. Assuming Mr. Jaeger chooses to harvest the Riesling grapes before the storm arrives, how much money will he make?
Harvesting before the storm arrives will bring $2.85 per bottle per case of revenue for the Riesling product. EMV = $2.85 c 12,000 = $34,200
2. Assuming Mr. Jaeger chooses to leave the grapes on the vine, what is the probability that the grapes will end up with botrytis, and how much money will he make if that occurs?
EMV Botrytis = 12,000 x .70 = 8,400 x $8.00 = $67,200
3. Taking account of all the various possibilities, what should Mr. Jaeger do?
Mr. Jaeger should choose the option of waiting for the storm and harvesting later. Mr. Jaeger can decide whether bottling a wine that was not up to standards, or selling the grapes at 50% lower price to protect company’s reputation. Either way, he can anticipate the higher revenue than harvesting the Riesling grapes immediately. Riesling contributes 1,000 cases of wine out of the annual 25,000 cases Freemark bottles. Since the decision analysis only affects approximately 4% of Freemark Abbey’s total production an EMV approach is appropriate. If the decision involved a larger percentage of production and the firm was not well-established, a near risk-averse approach might makesense.
4. How much would Mr. Jaeger be willing to pay to obtain perfect information about whether the storm really will hit the Napa Valley?
5. How much would Mr. Jaeger be willing to pay to obtain perfect information about whether botrytis would form if the storm were to hit the Napa
1. Assuming Mr. Jaeger chooses to harvest the Riesling grapes before the storm arrives, how much money will he make?
Harvesting before the storm arrives will bring $2.85 per bottle per case of revenue for the Riesling product. EMV = $2.85 c 12,000 = $34,200
2. Assuming Mr. Jaeger chooses to leave the grapes on the vine, what is the probability that the grapes will end up with botrytis, and how much money will he make if that occurs?
EMV Botrytis = 12,000 x .70 = 8,400 x $8.00 = $67,200
3. Taking account of all the various possibilities, what should Mr. Jaeger do?
Mr. Jaeger should choose the option of waiting for the storm and harvesting later. Mr. Jaeger can decide whether bottling a wine that was not up to standards, or selling the grapes at 50% lower price to protect company’s reputation. Either way, he can anticipate the higher revenue than harvesting the Riesling grapes immediately. Riesling contributes 1,000 cases of wine out of the annual 25,000 cases Freemark bottles. Since the decision analysis only affects approximately 4% of Freemark Abbey’s total production an EMV approach is appropriate. If the decision involved a larger percentage of production and the firm was not well-established, a near risk-averse approach might makesense.
4. How much would Mr. Jaeger be willing to pay to obtain perfect information about whether the storm really will hit the Napa Valley?
5. How much would Mr. Jaeger be willing to pay to obtain perfect information about whether botrytis would form if the storm were to hit the Napa