Operations Management (Comp. Instructor's Edition)
Operations Management (Comp. Instructor's Edition)
13th Edition
ISBN: 9781259948237
Author: Stevenson
Publisher: MCG
Question
Book Icon
Chapter 5.S, Problem 4P

a)

Summary Introduction

To draw: A decision tree diagram.

Introduction:

Decision tree is one of the methods used in decision-making process. It would graphically represent the available alternatives and states of nature. It would also mention the payoffs and probabilities of the alternatives. It helps to choose the best alternative that would give the best result among the alternatives.

a)

Expert Solution
Check Mark

Answer to Problem 4P

After analyzing decision tree large facility need to build.

Explanation of Solution

Given information:

If small facility is build:

When demand is lower, then NPV is $400,000.

When demand is higher, then two alternatives are as follows:

First alternative: To maintain and NPV is $50,000

Second alternative: To expand and NPV is $450,000

If large facility is build:

Demand is high: NPV is $800,000

Demand is low: NPV is -$10,000

Decision tree diagram:

Operations Management (Comp. Instructor's Edition), Chapter 5.S, Problem 4P , additional homework tip  1

Explanation:

Here we see that there are (1) two alternative decision small facility to build or to large facility to build. First alternative is to build small facility and there is also two sub parts, first is low demand and second is high demand. In high demand there are (2) two alternative decisions which has also two parts; first has to be maintained and other is expand.

Decision is based on right to left in decisions. We can see that expand have higher NPV that other alternatives.

Calculate the decision alternative payoffs:

It is given that probability of low demand is 40%, and high demand is 60%.

Small facility to build:

If low demand:

Payoff = Portability×NPVDemand low          =0.40×$400,000          =$160,000

Therefore, the payoff of low demand is $160,000.

If high demand:

Payoff = Portability×NPVDemand high           =0.60×$450,000          =$270,000

Therefore, the payoff of high demand is $270,000.

Large facility to build:

If low demand:

Payoff = Portability×NPVDemand low           =0.40×$10,000          =$4,000

If high demand:

Payoff = Portability×NPVDemand high           =0.60×$800,000          =$480,000

Calculate the expected value of each alternative:

Small facility to build:

Expected Valuesmall = PayoffDemand Low+PayoffDemand high                                =$160,000+$270,000                               =$430,000

Large facility to build

Expected ValueLarge = PayoffDemand Low+PayoffDemand high                                =$4,000+$480,000                               =$476,000

Here, we see that highest expected value is for larger facility to build so this alternative need to select and small facility alternative have double slash.

b)

Summary Introduction

To determine: To calculate expected value of perfect information.

Expected value of perfect information: It is the rate that a person is willing to pay to gain access to get perfect information. A common area which uses expected value of perfect information is the healthcare economy. This value tries to evaluate the expected cost of the uncertainty, which can be interpreted as the expected value of perfect information.

b)

Expert Solution
Check Mark

Answer to Problem 4P

The expected value of perfect information is $164,000.

Explanation of Solution

EVPI=Expected value with perfect information –MaximumEMV or EVPI=ExpectedpayoffundercertaintyExpectedpayoffunderrisk

Explanation

Calculation of expected value of perfect information:

Step 1: Calculate the expected value with perfection information or Expected payoff under certainty:

EVwPI=Max(Alternativepayoff)×Probabilitystate of nature =(400,000×0.40)+(800,000×0.60)=$640,000

Therefore, expected value with perfection information is $640,000.

Step 2: Calculation of the expected value of perfect information:

EVPI=$640,000$476,000=$164,000

Hence, the expected value of perfect information is $164,000.

c)

Summary Introduction

To determine: The range over each alternative that are best in term of the value of P.

Introduction: Decision table to evaluate the range over each alternative. Decision table is formats or visual representations were data is expressed arranged, determined and calculated to make an effective decision making. A decision table is a tabular representation that is used to analyze decision alternatives and states of nature.

c)

Expert Solution
Check Mark

Explanation of Solution

Decision table is based on each alternative which are relative to P (low) and graph of low demand and high demand:

Alternative High Demand Low Demand
Build Small $450,000 400,000
Build Large $800,000 -$10,000.00

Operations Management (Comp. Instructor's Edition), Chapter 5.S, Problem 4P , additional homework tip  2

From the above graph we can obtain that optimal value of P (low) over each alternative are, for low value of P (low) here we decide to build large facilities because we are getting higher expected value. For high value of P (low) we decided to build small facility because we are getting higher expected value.

Calculate the exact value of range:

Equations:

Build Small: 450,000 – 50,000P (slope = 400,000 – 450,000)

Build Large:800,000 – 810,000P (slope = -10,000 – 800,000)

Find the intersection between the two lines:

450,00050,000P = 800,000810,000P50,000P+810,000P = 800,000450,000760,000P = 350,000P=350,000760,000=0.4605

Optimal ranges:

Build Large: P (Low) = 0 to < .4605

Build Small: P (Low) > .4605 to 1.00

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
>>>> e 自 A ? ↑ G סוי - C Mind Tap Cengage Learning CENGAGE MINDTAP Chapter 12 Homework: Managing Inventories in Supply Chains Assignment: Chapter 12 Homework: Managing Inventories in Supply Chains Questions Problem 12-70 Algo (Managing Fixed-Quantity Inventory Systems) 6. 7. ng.cengage.com + O C Excel Online Student Work Q Search this course ? Save Assignment Score: 91.34% Submit Assignment for Grading e Question 8 of 11 ▸ A-Z Hint(s) Check My Work 8. 9. 10. 11. Spreadsheet Environmental considerations, material losses, and waste disposal can be included in the EOQ model to improve inventory-management decisions. Assume that the annual demand for an industrial chemical is 1,600 lb, item cost is $2/lb, order cost is $45, inventory holding cost rate (percent of item cost) is 15 percent. Use the EOQ Model Excel template in MindTap to answer the following: a. Find the EOQ and total cost, assuming no waste disposal. Do not round intermediate calculations. Round your answer for the EOQ to…
>>>> G סוי - C Mind Tap Cengage Learning CENGAGE MINDTAP Chapter 12 Homework: Managing Inventories in Supply Chains Questions Problem 12-44 Algo (Managing Fixed-Quantity Inventory Systems) 1. e 2. 3. 自 4. 5. ? ↑ 6. 7. 8. 9. 10. 11. ng.cengage.com + O C Excel Online Student Work Q Search this course ? Question 3 of 11 ► Hint(s) Check My Work Brenda opened a pool and spa store in a lively shopping mall and finds business to be booming but she often stocks out of key items customers want. The 28-ounce bottle of Super Algaecide (SA) is a high margin SKU, but it stocks out frequently. Ten SA bottles come in each box, and she orders boxes from a vendor 160 miles away. Brenda is busy running the store and seldom has time to review store inventory status and order the right quantity at the right time. She collected the following data: Demand = 9 boxes per week Order cost = $90/order Store open = 48 weeks/year Lead-time = 3 weeks Item cost = $180/box Inventory-holding cost = 10 percent per…
ווח CENGAGE MINDTAP G Chapter 09 Excel Activity: Exponential Smoothing Question 1 3.33/10 A e Submit 自 ? G→ Video Excel Online Tutorial Excel Online Activity: Exponential Smoothing ng.cengage.com Q Search this course ? A retail store records customer demand during each sales period. The data has been collected in the Microsoft Excel Online file below. Use the Microsoft Excel Online file below to develop the single exponential smoothing forecast and answer the following questions. X Open spreadsheet Questions 1. What is the forecast for the 13th period based on the single exponential smoothing? Round your answer to two decimal places. 91.01 2. What is the MSE for the single exponential smoothing forecast? Round your answer to two decimal places. 23.50 3. Choose the correct graph for the single exponential smoothing forecast. The correct graph is graph A ☑ Back Observation Exponential Smoothing Forecast 100 Forecast 95 95 90 90 A-Z Office Next A+

Chapter 5 Solutions

Operations Management (Comp. Instructor's Edition)

Ch. 5.S - What information is contained in a payoff table?Ch. 5.S - Prob. 7DRQCh. 5.S - Prob. 8DRQCh. 5.S - Under what circumstances is expected monetary...Ch. 5.S - Explain or define each of these terms: a. Laplace...Ch. 5.S - Prob. 11DRQCh. 5.S - Prob. 12DRQCh. 5.S - Prob. 13DRQCh. 5.S - Prob. 1PCh. 5.S - Refer to problem1. Suppose after a certain amount...Ch. 5.S - Refer to Problems 1 and 2 Construct a graph that...Ch. 5.S - Prob. 4PCh. 5.S - Prob. 5PCh. 5.S - The lease of Theme Park, Inc., is about to expire....Ch. 5.S - Prob. 7PCh. 5.S - Prob. 8PCh. 5.S - Prob. 9PCh. 5.S - A manager must decide how many machines of a...Ch. 5.S - Prob. 11PCh. 5.S - Prob. 12PCh. 5.S - Prob. 13PCh. 5.S - Prob. 14PCh. 5.S - Give this payoff table: a. Determine the range of...Ch. 5.S - Prob. 16PCh. 5.S - Repeat all parts of problem 16, assuming the value...Ch. 5.S - Prob. 18PCh. 5 - Prob. 1DRQCh. 5 - Prob. 2DRQCh. 5 - How do long-term and short-term capacity...Ch. 5 - Give an example of a good and a service that...Ch. 5 - Give some example of building flexibility into...Ch. 5 - Why is it important to adopt a big-picture...Ch. 5 - What is meant by capacity in chunks, and why is...Ch. 5 - Prob. 8DRQCh. 5 - How can a systems approach to capacity planning be...Ch. 5 - Prob. 10DRQCh. 5 - Why is it important to match process capabilities...Ch. 5 - Briefly discuss how uncertainty affects capacity...Ch. 5 - Prob. 13DRQCh. 5 - Prob. 14DRQCh. 5 - Prob. 15DRQCh. 5 - Prob. 16DRQCh. 5 - What is the benefit to a business organization of...Ch. 5 - Prob. 1TSCh. 5 - Prob. 2TSCh. 5 - Prob. 3TSCh. 5 - Prob. 1CTECh. 5 - Prob. 2CTECh. 5 - Identify four potential unethical actions or...Ch. 5 - Any increase in efficiency also increases...Ch. 5 - Prob. 1PCh. 5 - In a job shop, effective capacity is only 50...Ch. 5 - A producer of pottery is considering the addition...Ch. 5 - A small firm intends to increase the capacity of a...Ch. 5 - A producer of felt-tip pens has received a...Ch. 5 - A real estate agent is considering changing her...Ch. 5 - A firm plans to begin production of a new small...Ch. 5 - A manager is trying to decide whether to purchase...Ch. 5 - A company manufactures a product using two machine...Ch. 5 - A company must decide which type of machine to...Ch. 5 - Prob. 11PCh. 5 - A manager must decide how many machines of a...Ch. 5 - Prob. 13PCh. 5 - The following diagram shows a four-step process...Ch. 5 - Prob. 15PCh. 5 - Prob. 16PCh. 5 - Prob. 17PCh. 5 - Prob. 18PCh. 5 - A new machine will cost 18,000, butt result it...Ch. 5 - Remodelling an office will cost 25,000 and will...Ch. 5 - Prob. 1CQCh. 5 - Prob. 2CQCh. 5 - Prob. 3CQ
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
  • Text book image
    Practical Management Science
    Operations Management
    ISBN:9781337406659
    Author:WINSTON, Wayne L.
    Publisher:Cengage,
    Text book image
    Purchasing and Supply Chain Management
    Operations Management
    ISBN:9781285869681
    Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
    Publisher:Cengage Learning
    Text book image
    Marketing
    Marketing
    ISBN:9780357033791
    Author:Pride, William M
    Publisher:South Western Educational Publishing
  • Text book image
    MARKETING 2018
    Marketing
    ISBN:9780357033753
    Author:Pride
    Publisher:CENGAGE L
Text book image
Practical Management Science
Operations Management
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:Cengage,
Text book image
Purchasing and Supply Chain Management
Operations Management
ISBN:9781285869681
Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:Cengage Learning
Text book image
Marketing
Marketing
ISBN:9780357033791
Author:Pride, William M
Publisher:South Western Educational Publishing
Text book image
MARKETING 2018
Marketing
ISBN:9780357033753
Author:Pride
Publisher:CENGAGE L