Ronald Lau, chief engineer at South Dakota Electronics, has to decide whether tobuild a new state-of-the-art processing facility. If the new facility works, thecompany could realize a profit of $200,000. If it fails, South Dakota Electronics couldlose $180,000. At this time, Lau estimates a 60% chance that the new process willfail.The other option is to build a pilot plant and then decide whether to build acomplete facility. The pilot plant would cost $10,000 to build. Lau estimates a 50 -50 chance that the pilot plant will work. If the pilot plant works, there is a 90%probability that the complete plant, if it is built, will also work. If the pilot plant doesnot work, there is only a 20% chance that the complete project (if it is constructed)will work. Lau faces a dilemma. Should he build the plant? Should he build the pilotproject and then make a decision? Help Lau by analyzing this problem. Px

Decision analysis is a part of business operations where the organization has to take a decision…

Answered: Ronald Lau, chief engineer at South…

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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A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.40, 0.35, and 0.25, respectively. A small facility is expected to earn an after-tax net present value of just $13,000 if demand is low. If demand is average, the small facility is expected to earn $15,000; it can be increased to medium size to earn a net present value of $30,000. If demand is high, the small facility is expected to earn $25,000 and can be expanded to medium size to earn $50,000 or to large size to earn $100,000. A medium-sized facility is expected to lose an estimated $50,000 if demand is low and earn $100,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $125,000; it can be expanded to a large size for a net payoff of $175,000. If a large facility is built and demand is high, earnings are expected to be $180,000. If demand is average for the large…
Emerson Electric is considering the purchase of equipment that will allow the company to manufacture a new line of wireless devices for home appliance control. The first cost will be $80,000 and the life estimated is 6 years with a salvage value of $10,000. Three different salespeople have provided estimates regarding the added revenue the equipment will generate. Salespersons 1,2, and 3 have made estimates of $10,000 , $16,000 , and $18,000 per year respectively if the Companys MARR is 8% per year find the PW of each salespersons estimates.
1. Kirsten is trying to decide where to go for her well-earned vacation. She would like to camp, but if the weather is bad, she will have to go to a motel. Given the costs and probabilities of bad weather given below, which destination should she choose? Camping cost Motel cost Probability of bad weather Nevada $21.2 $80.9 0.2 Oregon $15.9 $84.6 0.4 California $30 $95 0.1 a. California, because its EMV = $33.14 b. Nevada, because its EMV = $33.14 c. California, because its EMV = $36.5 d. Any of the 3 choices. e. Oregon, because its EMV = $43.38 f. Nevada, because its EMV = $43.38 g. None of the 3 choices. h. Oregon, because its EMV is $36.50.
Howard Weiss, Inc., is considering building a sensitive new radiation scanning device. His managers believe that there is a probability of 0.6 that the ATR Co. will come out with a competitive product. If Weiss adds an assembly line for the product and ATR Co. does not follow with a competitive product, Weiss's expected profit is $40,000; if Weiss adds an assembly line and ATR follows suit, Weiss still expects $10,000 profit. If Weiss adds a new plant addition and ATR does not produce a competitive product, Weiss expects a profit of $600,000; if ATR does compete for this market, Weiss expects a loss of $100,000. What is the best decision based on expected monetary value (EMV)? What are the EMV and the expected value of perfect information (EVPI)? The best decision is to select the new plant with the EMV of $320,000 and the EVPI is $364,000. The best decision is to select the assembly line with the EMV of $180,000 and the EVPI is $66,000. The best decision is to select the assembly line…
A company is considering whether to develop and market a particular product. There is 40% probability that the research and development department will come up with a viable product, and a 60% probability that the product will be scrapped. The cost of undertaking the research and development is 200 000. If the product development is successful, the company will build a plant. The product demand is unknown, and the company has the choice of building a large or small plant. The expected demand and the net present value is shown below: High Demand Low Demand ACTION Probability 75% Probability 25% Large Plant N$1 600 000 N$400 000 Small Plant N$1 000 000 N$1 000 000 Required: Advise the company on the most beneficial course of action using a decision tree.
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Build New plant option=
You are deciding between two alternatives to build a facility between two different locations based on the estimated profitability it will generate the first year minus the investment cost. Building in location A will cost $1.1M and there is a 30% chance the workforce will generate $1M in profit, 50% chance it will generate $1.2M in profit and 20% chance it will generate $1.4M in profit. Location B will cost $1.7M and there is a 35% chance the workforce will generate $1.3M in profit, a 40% chance it will generate $1.7M in profit and a 25% it will generate $1.9M in profit. What decision will you recommend based on a decision tree analysis of these alternatives?
Read the scenario below and answer the questions that follow: Bart is a senior manager at ‘Drive Away’ a car sales business in Durban. He is required to provide a detailed report to his CEO and founder of the company who is no longer involved in the day to day running of the business and currently lives in London. The report is based on the research Bart has conducted over the past year regarding the effects of COVID-19 on the business. ‘Drive Away’ has a staff complement of 30 employees, which consists of the CEO/owner; Bart, the senior/general manager; 4 other managers, admin, finance, HR and sales; 10 sales reps; 5 administrators; 5 financial administrators; 1 Personal assistant and 3 general workers. The primary function of the business is the sale of motor vehicles, brand new or used as well as providing a financial service (assisting prospective clients in obtaining vehicle finance and and insurance Explain which data collection method would be the most fitted choice for Bart’s…

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