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14. BK books is an online retailer that also has 10,000 â??bricks and mortarâ? outlets worldwide. You are a risk â?" neutral manager within the Corporate Finance Division and are in dire need of a new financial analyst. You only interview students from the top MBA programs in your area. Thanks to your screening mechanisms and contacts, the student you interview ultimately differ only with respect to the wage that there are willing to accept. About 5 percent of acceptable candidates are willing to accept a salary of $60,000, while 95 percent demand a salary of 110,000. There are two phases to the interview process that every interviewee must go through. Phase 1 is the initial one-hour on-campus interview. All candidates interviewed in Phase 1are also invited to Phase 2 of the interview, which consists of a five-hour office visit. In all, you spend six hours interviewing each candidate and value this time at $750. In addition, it costs a total of 4,250 in travel expenses to interview each candidate. You are very impressed by the first interviewee completing both phases of BK books interviewing process, and she has indicated that her reservation salary is 110,000. Should you make her an offer at that salary or continue the interviewing process? Explain.

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Solution Summary

Shows how to take an economic decision given expected costs and expected benefits for a risk neutral manager.

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The candidate has cleared both the rounds - the initial one-hour on-campus interview and a five-hour office visit. Since, she is indicating a reservation price ...

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