Recyclops Corporation has grown to become of the largest recycling operations in the northeast, serving parts...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Recyclops Corporation has grown to become of the largest recycling operations in the northeast, serving parts of Pennsylvania, New York, and New Jersey. Dwight Schrute, president and CEO is considering expanding recycling operations into Rhode Island. Dwight believes that a small facility in northern Mississippi would yield a $650,000 profit regardless of the market for the facility. The success of a medium-sized recycling facility would depend on the market. With a low demand for recycling, Dwight expects a $260,000 return. Dwight estimates that a medium demand would yield a $910,000 and high demand would yield $1,040,000. Although a large facility is riskier, the potential return is greater. With a high demand for recycling in the region, the large facility should retum $1,300,000. With a medium demand, the large facility should return only $400,000. Dwight expects to lose $260,000 on the deal if he builds the large facility if demand is low. Economic projections for the region led Dwight to estimate the probability of a low demand at 0.15, medium demand at 0.35, and high demand at 0.5. To get a better feel for the demand for recycling operations in the region, Dwight has considered hiring the Michael Scott Consulting Company to conduct a survey of potential customers. The cost of the survey is $50,000. MSCC has provided the following information about past survey results: Possible Outcome Low Demand Medium Demand High Demand Low Survey 0.7 0.4 0.1 • • • Survey Results Medium Survey . 0.2 0.5 0.3 The survey could result in three possible outcomes, with low survey indicating low demand and high survey indicating high demand. High Survey 0.1 0.1 .6 As the assistant to the president, you have been tasked with developing a decision strategy for this scenario. Build and solve a decision tree Identify the optimal strategy Comment on model sensitivity, especially to changes in Dwight's initial estimates of market demand Calculate and discuss EVPI and EVSI Recyclops Corporation has grown to become of the largest recycling operations in the northeast, serving parts of Pennsylvania, New York, and New Jersey. Dwight Schrute, president and CEO is considering expanding recycling operations into Rhode Island. Dwight believes that a small facility in northern Mississippi would yield a $650,000 profit regardless of the market for the facility. The success of a medium-sized recycling facility would depend on the market. With a low demand for recycling, Dwight expects a $260,000 return. Dwight estimates that a medium demand would yield a $910,000 and high demand would yield $1,040,000. Although a large facility is riskier, the potential return is greater. With a high demand for recycling in the region, the large facility should retum $1,300,000. With a medium demand, the large facility should return only $400,000. Dwight expects to lose $260,000 on the deal if he builds the large facility if demand is low. Economic projections for the region led Dwight to estimate the probability of a low demand at 0.15, medium demand at 0.35, and high demand at 0.5. To get a better feel for the demand for recycling operations in the region, Dwight has considered hiring the Michael Scott Consulting Company to conduct a survey of potential customers. The cost of the survey is $50,000. MSCC has provided the following information about past survey results: Possible Outcome Low Demand Medium Demand High Demand Low Survey 0.7 0.4 0.1 • • • Survey Results Medium Survey . 0.2 0.5 0.3 The survey could result in three possible outcomes, with low survey indicating low demand and high survey indicating high demand. High Survey 0.1 0.1 .6 As the assistant to the president, you have been tasked with developing a decision strategy for this scenario. Build and solve a decision tree Identify the optimal strategy Comment on model sensitivity, especially to changes in Dwight's initial estimates of market demand Calculate and discuss EVPI and EVSI
Expert Answer:
Answer rating: 100% (QA)
a Decision Tree Low Survey If low survey then there is a 70 chance of low demand and a 30 chance of medium demand If low demand then there is a 100 ch... View the full answer
Related Book For
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
Posted Date:
Students also viewed these accounting questions
-
A specialty chemical company is considering expanding its operations into Brazil, where five companies dominate the consumption of specialty chemicals. What sort of distribution network should this...
-
Rollins Inc. is considering expanding its operations into different regions of the country; however this expansion will require significant cash flow as well as additional financing. Rollins reported...
-
Rollins Inc. is considering expanding its operations into different regions of the country; however, this expansion will require significant cash flow as well as additional financing. Rollins...
-
Fox Erasing has a system of internal control with the following procedures. Match the procedure to the corresponding internal control principle. Procedure Internal Control Principle A. Establish...
-
Fallon Company had the following information for the years ended December 31. a. Determine the return on assets ratio for 2014 and 2013. b. Does the change in the return on assets ratio from 2013 to...
-
To determine whether internal controls operated effectively to minimize errors of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by...
-
Bonsai Boards income statement data for the year ended December 31,2010, follow. Assume that the ending inventory was accidentally overstated by $3,300. What are the correct amounts for cost of goods...
-
Indicate whether each of the following describes an accounting treatment that is acceptable under IFRS, U.S. GAAP, both, or neither, by checking the appropriate box. Acceptable Under IFRS U.S. GAAP...
-
Discuss the interdisciplinary nature of civil engineering research and practice, highlighting the integration of concepts from fields such as materials science, computer science, and urban planning...
-
An employer can use a job analysis to evaluate employees in similar positions. Do you think that a job applicant is more likely to be hired if they exemplify previous experience in a similar...
-
Interpret the budget and provide summary in 500 words by reflecting the understanding of budgeting principles. the summary needs to include comparison of 2019/20 to 2018/19 budget of blue mountains...
-
Who should you select for your systems-testing team? What skills should they have?
-
What is the most commonly accepted notation standard for object modeling?
-
In terms of aggregation relationships, what is the difference between the use of a hollow diamond and the use of a solid diamond?
-
How should analysts show the object or class relationship using UML?
-
In object-oriented analysis and modeling, objects and classes do not exist in isolation. Why is this?
-
a) Choose FOUR (4) business processes supported by enterprise systems. b) Based on your understanding of enterprise systems, present TWO (2) of its benefits.
-
If M = 7, s = 2, and X = 9.5, what is z?
-
Choco-Lots Candy Co. makes chewy chocolate candies at a plant in Winston-Salem, North Carolina. Brian Main, the production manager at this facility, installed a packaging machine last year at a cost...
-
Past experience indicates an 85 percent probability that a reported overhead cost variance is not due to a specific cause (i.e., is attributable to random fluctuations). Past experience also shows...
-
What does the term cost management mean? Who in the typical firm or organization is responsible for cost management?
-
Evaluate Mephisto Products current approach to sales. Why has it been relatively successful to date?
-
What problems can you anticipate if Tony Bullins goes ahead and changes the sales team and selling philosophy?
-
How does the role of selling tend to differ between: (a) industrial products (B2B)? (b) consumer products (B2C)?
Study smarter with the SolutionInn App