I orly c is purchased and demarid proes lo be excessM, hesecond machine can be p

Question

I orly c is purchased and demarid proes lo be excessM, hesecond machine can be purchased later Sorne sales will be last, hwer, because the lead ne fer preducing his type of machine is six months. In addition, the cost per machine wll be oe ifboth are purchasad at the same time The probability of c d mand is es mated 10 be 020 The ater-tax net present value cfthe benef s fonh purchasing the two macnlnas together is E00 000 i damard is low and $100,000 fcamand is high lf one macn na 's purchased and demand s low, he net present value is $110 00 demand high, the manager has hree options. Dong nething has a na pra” value of $100,000 subcontracting $150 00D and buying he second mac na 3120 OCO a. Choose the comect decision trae for this problam. Nots that ach payoff is givan in thousands of dollars. A anager is trying ta decide eo buy one machine or w H. Low camand 110 Do n 0.20 Highd 100 Low demand 110 Buy 1 machin 15 ndSbcontract Buy 1 0.20 Do nothine 1D.80 Buy 2 machines Buy 2 0 machines 120 Subcnct 150 Low demand Hicn demand 108 Buy 2 Buy 2 machines h demand 0.00 180 Low demand0 0.20

Explanation / Answer

B is the correct diagram for the given probability tree problem

At point 2, Person will subcontract with payoff of 150

PV of buying 1 machine=0.2*110+0.8*150=208

PV of buying 2 machine=180*.8+80*0.2=160

We should buy 1 machine and expected payoff is 208

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---