Requirements (in sq. ft) 200,000 300,000 400,000 500,000 Probability 0.4 0.3 0.2 0.1
Acadia Logistics anticipates that it will need more distribu-
tion center space to accommodate what it believes will be
a significant increase in demand for its final-mile services.
Acadia could either lease public warehouse space to cover
all levels of demand or construct its own distribution center
to meet a specified level of demand, and then use public
warehousing to cover the rest. The yearly cost of building
and operating its own facility, including the amortized cost
of construction, is $12.00 per square foot. The yearly cost of
leasing public warehouse space is $20.00 per square foot. The
expected demand requirements follow:
a. Calculate the expected value of leasing public warehouse
space as required by demand.
b. Calculate the expected value of building a 200,000-square-
foot distribution center and leasing public warehouse
space as required if demand exceeds the need for 200,000
square feet of space.
c. Calculate the expected value of building a 300,000-square-
foot distribution center and leasing public warehouse
space as required if demand exceeds the need for 300,000
square feet of space.
d. Calculate the expected value of building a 400,000-square-
foot distribution center and leasing public warehouse
space as required if demand exceeds the need for 400,000
square feet of space.
e. Calculate the expected value of building a 500,000-square-
foot distribution.
f. Which of the above decisions provides the minimized
expected value?
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