As a storm approaches, Mr. Jaeger must evaluate the risk of harvesting his Riesling grapes immediately or holding off and taking the chance the grapes become thin or produce no mold and sell at a lower price. Mr. Jaeger must evaluate the risk and the expected revenues related to his different options. The recommendation is that Mr. Jaeger should not harvest the Riesling grapes right now but wait for a better profit given by the possibility of an upcoming rainstorm that may prove to produce a botrytis mold proved to produce a more complex and greater revenue generating wine.
It is important for Mr. Jaeger to review the alternatives that are presented in this particular situation. Mr. Jaeger has a few options that are presented that he may be able to use throughout his analysis process. Mr. Jaeger's main alternatives are weather to Harvest his grapes now and take revenue that is guaranteed or wait to harvest and wait for rainfall that may provide greater revenues for some situations that may occur.
Another option Mr. Jaeger is faced with is selling his grapes at 50% of their value in order to prevent his business from developing a poor reputation amongst wine purchasers.
Some very critical uncertainties that Mr. Jaeger faces is whether or not a rain storm will come as well as, will the rainstorm cause mild to grow on the Riesling grapes and produce the botrytis mold that allows Mr. Jaeger to sell his wine at $8.00 a bottle significantly more than the $2.85 he would sell each bottle for if he choose to harvest now. Mr. Jaeger's main objective is to maximize net cash flow while preventing a loss of reputation to his winery.
The decision tree (see attached exhibit) offers two options for Mr. Jaeger. Option 1...