Phillip Witt, president of Witt Input Devices, wishes to create a portfolio of local suppliers for his new line of keyboards. As the suppliers all reside in a location prone to hurricanes, tornadoes, flooding, and earthquakes, Phillip believes that the probability in any year of a “super-event” that might shut down all suppliers at the same time for at least 2 weeks is 3%. Such a total shutdown would cost the company approximately $400, 000. He estimates the “unique-event” risk for any of the suppliers to be 5%. Let us assume that the marginal cost of managing an additional supplier is $15,000 per year. Assume that up to three nearly identical local suppliers are available.

a) What is the probability of a total disruption using one supplier?

b) What is the probability of a total disruption using two suppliers?

c) What is the probability of a total disruption using three suppliers?

d) Please construct a decision tree.

e) Based on your decision tree analysis, how many suppliers should Witt Input Devices use?

Answer rating: 100% (QA)

Decision tree The Expected monetary Value EMV for t... View the full answer