Phillip Witt, president of Witt Input Devices, wishes to create a portfolio of l
ID: 356035 • Letter: P
Question
Phillip Witt, president of Witt Input Devices, wishes to create a portfolio of local suppliers for his new line of keyboards. As the suppliers all reside in a location prone to hurricanes, tornadoes, flooding, and earthquakes, Phillip believes that the probability in any year of a "super-event" that might shut down all suppliers at the same time at least 2 weeks ?s 3%. Such a total shutdown would cost the company approximately $520.000. He estimates the "unique-event" nsk for any of the suppliers to be 7%. Assuming that the marginal cost of managing an additional supplier is $14,800 per year, how many suppliers should Witt Input Devices use? Assume that up to three nearly identical local suppliers are available. Find the EMV for alternatives using 1, 2, or 3 suppliers. EMV(1) S EMV(2) S EMV(3)- S (Enter your response rounded to the nearest whole number) (Enter your response rounded to the nearest whole number) (Enter your response rounded to the nearest whole number) Based on the the EMV value, the best choice is to use (1) (1) O two suppliers O three suppliers O one supplierExplanation / Answer
Super Event: (3/100)*(-520000) = -$15600
Unique Event: (7/100)*(-14800) = -$1036
EMV (1 supplier) = -$15600-$1036 = -$16636
EMV (2 supplier) = -$15600-(2*$1036) = -$17672
EMV (3 supplier) = -$15600-(3*$1036) = -$18708
Based on EMV, expected number of supplier is one supplier