A-1. Which is more desirable assuming data are PROFIT Lecertaine the coure hagram. 90 60 Va (45) 45 99 50 50 30 20 40 50
A-1. Which is more desirable assuming data are PROFIT Lecertaine the coure hagram. 90 60 Va (45) 45 99 50 50 30 20 40 50
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Question
![A-1. Which is more desirable assuming data are PROFIT
Decertaine the course
dagram.
90
60
Va
(45)
45
99
50
50
30
.20
/2
40
50
A-2. A firm must decide whether to construct a small, medium or large stamping plant. A consultant's report indicates a 0.20
probability that demand will be low and 0.80 that demand will be high.
If the firm builds a smll facility and demand turns out to be low, the Net Present Value (NPV) will
be $42M. If demand turns out to be high, the firm can either subcontract and realize the NPV of $42M or expand
greatly for a Net Present Value of $48M.
The firm could build a medium size facility as a hedge: if demand turns out to be low, its NPV is
estimated at $22M; if demand turns out to be high, the firm could do nothing and realize a NPV of $46M, or could
expand and realize a NPV of $50M.
If the firm builds a large facility and demand is low, the NPV will be ($20M), whereas high demand will result
in a NPV of $72M.
a) Analyze and solve this problem using a decision tree
b) What is the Maximax Alternative
c) Compute the EVPI](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff08ef437-bcba-4cdf-b30e-b18a42ce6d18%2F4ddd0b38-68c3-4f4b-aa77-6eb3b0c097d7%2Fvuatm0d_processed.png&w=3840&q=75)
Transcribed Image Text:A-1. Which is more desirable assuming data are PROFIT
Decertaine the course
dagram.
90
60
Va
(45)
45
99
50
50
30
.20
/2
40
50
A-2. A firm must decide whether to construct a small, medium or large stamping plant. A consultant's report indicates a 0.20
probability that demand will be low and 0.80 that demand will be high.
If the firm builds a smll facility and demand turns out to be low, the Net Present Value (NPV) will
be $42M. If demand turns out to be high, the firm can either subcontract and realize the NPV of $42M or expand
greatly for a Net Present Value of $48M.
The firm could build a medium size facility as a hedge: if demand turns out to be low, its NPV is
estimated at $22M; if demand turns out to be high, the firm could do nothing and realize a NPV of $46M, or could
expand and realize a NPV of $50M.
If the firm builds a large facility and demand is low, the NPV will be ($20M), whereas high demand will result
in a NPV of $72M.
a) Analyze and solve this problem using a decision tree
b) What is the Maximax Alternative
c) Compute the EVPI
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