Dawson Electronics is a manufacturer of high-tech control modules for lawn sprinkler systems. Denise, the CEO, is trying to decide if the company should develop one of two potential new products, the Water Saver 1000 or the Greener Grass 5000. With each product, Dawson can capture a bigger market share if it chooses to expand capacity by buying additional machines. Given different demand scenarios, their probabilities of occurrence, and capacity expansion versus no change in capacity, the potential sales of each product are summarized in Table 5.50. Table 5.5 Demand and Sales Information for Dawson Electronics Low Demand Medium Demand High Demand Low Demand Medium Demand High Demand Water Saver 1000 Dollar Sales ($1,000) With Capacity Expansion 1,000 2,000 3,000 700 Greener Grass 5000 Dollar Sales ($1,000) 1,000 2,000 2,500 Without Capacity Expansion 3,000 5,000 1,000 2,000 3,000 Probability of Occurrence 0.25 0.50 0.25 0.25 0.50 0.25 a. What is the expected payoff for Water Saver 1000 and the Greener Grass 5000, with and without capacity expansion? b. Which product should Denise choose to produce, and with which capacity expansion option?

Dawson Electronics is a manufacturer of high-tech control modules for lawn sprinkler systems. Denise, the CEO, is trying to decide if the company should develop one of two potential new products, the Water Saver 1000 or the Greener Grass 5000. With each product, Dawson can capture a bigger market share if it chooses to expand capacity by buying additional machines. Given different demand scenarios, their probabilities of occurrence, and capacity expansion versus no change in capacity, the potential sales of each product are summarized in Table 5.50. Table 5.5 Demand and Sales Information for Dawson Electronics Low Demand Medium Demand High Demand Low Demand Medium Demand High Demand Water Saver 1000 Dollar Sales ($1,000) With Capacity Expansion 1,000 2,000 3,000 700 Greener Grass 5000 Dollar Sales ($1,000) 1,000 2,000 2,500 Without Capacity Expansion 3,000 5,000 1,000 2,000 3,000 Probability of Occurrence 0.25 0.50 0.25 0.25 0.50 0.25 a. What is the expected payoff for Water Saver 1000 and the Greener Grass 5000, with and without capacity expansion? b. Which product should Denise choose to produce, and with which capacity expansion option?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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