A manager is trying to decide whether to buy one machine or two. If only one machine is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales would be lost, however, because the lead time for delivery of this type of machine is 6 months. In addition, the cost per machine will be lower if both machines are purchased at the same time. The probability of low demand is estimated to be 0.30 and that of high demand to be 0.70. The after-tax NPV of the benefits from purchasing two machines together is $90,000 if demand is low and $170,000 if demand is high. If one machine is purchased and demand is low, the NPV is $120,000. If demand is high, the manager has three options: (1) doing nothing, which has an NPV of $120,000; (2) subcontracting, with an NPV of $140,000; and (3) buying the second machine, with an NPV of $130,000.
a. Draw a decision tree for this problem.
b. What is the best decision and what is its expected payoff?
A manager is trying to decide whether to buy one machine or two. If only one...
Please provide correct answer for part B. A manager is trying to decide whether to buy one machine or two. If only one is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales will be lost, however, because the lead time for producing this type of machine is six months. In addition, the cost per machine will be lower if both are purchased at the same time. The probability of low demand is...
A manager is trying to decide whether to buy one machine or two. If only one machine is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales would be lost, however, because the lead time for delivery of this type of machine is six months. In addition, the cost per machine will be lower if both machines are purchased at the same time. The probability of low demand is estimated to be 0.20...
A manager must decide how many machines of a certain type to buy. The machines will be used to manufacture a new gear for which there is increase demand. The manager has narrowed the decision to two alternatives; buy one machine or buy two. If only one machine is purchased and demand is more than it can handle, a second machine can be purchased at a later time. however, the cost per machine would be lower if the two machines...
Question Completion Status: QUESTION 3 A manager must decide how many machines of a certain type to buy. The machines will be used to manufacture a new gear for which there is increased demand. The manager has narrowed the decision to two alternatives: buy one machine or buy two. If only one machine is purchased and demand is more than it can handle, a second machine can be purchased at a later time. However, the cost per machine would be...
Limousine Inc. must decide how many new limousines to buy. The owner has narrowed down the decision to two choices: buy one limousine or two limousines. If only one limousine is bought and demand ridership is high, a second limousine can be bought later. The probability of high demand is ridership 0.65, and the probability of low demand ridership is 0.35. The net present value obtained with the purchase of two limousines is $100,000 if demand is high and $65,000...
Limousine Inc. must decide how many new limousines to buy. The owner has narrowed limousine to buy The owner has narrowed down Decision to two choices: buy one limousine or two limousines. If only one limousine is bought and demand ridership is high, a second limousine ndership is high, a second limousine can be bought later. The probability high demand ridership is 0.65, and the probability of low demand ridership is 0.35. The net present value obtained with the purchase...
Director of legal services of ABC Company must decide whether to hire another full-time lawyer or to hire part-time lawyers. Anticipated costs for the two options under three possible demand levels are given in the table below: States of Nature High Alternatives Low Demand Medium Demand Demand Hire full-time $900 $800 $100 Hire part- $800 $300 $600 time Probabilities 0.45 0.5 0.05 What is the EMV of the best decision? Specify only the amount. e.g. 350 Answer: Given the following...
decide that Steve Gilbert, As operations manager of Holz Furniture, you must make a decision about adding a line of rustic furniture. In discussing the possibilities with your sales mar there will definite ly be a market and that your firm should enter that market. However, because rustic furniture has a different finish than your standard offering, you decide you need another process line. There is no doubt in your mind about the decision, and you are sure that you...
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This Question: 5 pts 23 of 45 As operations manager of Holz Funiture, you must make a decision about adding a line of rustic furniture. In discussing the possibilšies should enter that market However, because rustic furniture has a different finish than your standard offering, you decide with your sales manager, Steve Gilbert, you decide that there will definitely be a market and that your firm you need another process line. There is no doubt in your mind about the...