4. Consider the two capacity options for Arktec Manufacturing shown below: FIXED COST (PER YEAR) Option 1 Option 2 $500,000 $100,000 25,000 60,000 VARIABLE COST (PER UNIT) Suppose the company has identified the following three possible demand scenarios: DEMAND (UNITS PER YEAR) PROBABILITY 100,000 $2 per unit $10 per unit 30% 40% 30% a. (**) What is the expected value of each option? Which option would you choose, based on this information? b. (**) Suppose the lowest and highest demand levels are updated to 40,000 and 110,000, respectively. Recalculate the expected values. What happened? c. (**) Draw the decision tree for Arktec Manufacturing. When drawing your tree, assume that managers must select a capacity option before they know what the demand level will actually be. d. (**) Calculate the expected value for each decision branch. Which option would you prefer? Why? 1

Sunnnea the comnanv has identified the following three possible demand scenarios: a. ("*) What is the expected value of each option? Which option would you choose, based on this information? b. ("*) Suppose the lowest and highest demand levels are updated to 40,000 and 110,000 , respectively. Recalculate the expected values. What happened? c. (" ) Draw the decision tree for Arktec Manufacturing. When drawing your tree, assume that managers must select a capacity option before they know what the demand level will actually be. d. ("*) Calculate the expected value for each decision branch. Which option would you prefer? Why