The company has decided to build a second plant, as full capacity has been achieved by the present manufacturing unit. The second plant may be large or small, located at a nearby area and the demand may be low or high, while 0.3 is the probability for low demand. The small plant will have a present value of $ 8 million and large plant $ 5 million , for low demands. The small plant payoff with a present value of $ 10 million and the large plant at $ 18 million for a high demand scenario. The small plant could be expanded for a present value of $ 14 million , if the demand works out be high. A decision tree for this problem needs to be drawn. Concept Introduction: The measure of likelihood that an event will happen, in a random experiment is called probability.

Question

Want to see the full answer?

Answer 1

Question

Chapter A, Problem 24P

(a)

Summary Introduction

Interpretation: The company has decided to build a second plant, as full capacity has been achieved by the present manufacturing unit. The second plant may be large or small, located at a nearby area and the demand may be low or high, while 0.3 is the probability for low demand. The small plant will have a present value of $8 million and large plant

$5 million , for low demands. The small plant payoff with a present value of $10 million and the large plant at $18 million for a high demand scenario. The small plant could be expanded for a present value of $14 million , if the demand works out be high. A decision tree for this problem needs to be drawn.Concept Introduction: The measure of likelihood that an event will happen, in a random experiment is called probability.

(b)

Summary Introduction

Interpretation: The company has decided to build a second plant, as full capacity has been achieved by the present manufacturing unit. The second plant may be large or small, located at a nearby area and the demand may be low or high, while 0.3 is the probability for low demand. The small plant will have a present value of $8 million and large plant $5 million , for low demands. The small plant payoff with a present value of $10 million and the large plant at $18 million for a high demand scenario. The small plant could be expanded for a present value of $14 million , if the demand works out be high. In order to achieve the highest expected payoff, the procedure done by the management needs to be derived.

Concept Introduction: The measure of likelihood that an event will happen, in a random experiment is called probability.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

What is a bottleneck? Would you try to reduce a bottleneck? Why or why not? Please provide a reference

Your firm has been the auditor of Caribild Products, a listed company, for a number of years. The engagement partner has asked you to describe the matters you would consider when planning the audit for the year ended 31January 2022. During recent visit to the company you obtained the following information: (a) The management accounts for the 10 months to 30 November 2021 show a revenue of $260 million and profit before tax of $8 million. Assume sales and profits accrue evenly throughout the year. In the year ended 31 January 2021 Caribild Products had sales of $220 million and profit before tax of $16 million. (b) The company installed a new computerised inventory control system which has operated from 1 June 2021. As the inventory control system records inventory movements and current inventory quantities, the company is proposing: (i) To use the inventory quantities on the computer to value the inventory at the year-end (ii) Not to carry out an inventory count at the year-end (c)…

Develop and implement a complex and scientific project for an organisation of your choice. please include report include the following: Introduction Background research to the project The 5 basic phases in the project management process Project Initiation Project Planning Project Execution Project Monitoring and Controlling Project Closing Conclusion