Answered: Phillip Witt, president of Witt Input…

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

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 is

3%.

Such a total shutdown would cost the company approximately

$480,000.

He estimates the "unique-event" risk for any of the suppliers to be

5%.

Assuming that the marginal cost of managing an additional supplier is

$16,000

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)=$54,40054,400

(Enter your response rounded to the nearest whole number.)

EMV(2)= ? $

(Enter your response rounded to the nearest whole number.)

EMV(3)= ? $

(Enter your response rounded to the nearest whole number.)

Based on the EMV value the best choice is to use _____ ?

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