A Supply Chain manager needs to make a decision on whether to build large or small warehouse. If the manager builds a large warehouse, there is a probability of 0.6 for high demand and a probability of 0.4 for low demand. If manager decides to build a small warehouse, there is a probability of 0.6 for high demand while 0.4 for low demand. The payoff for the high demand scenario for a large warehouse is $91.0 and $44.0 for a small warehouse. If the manager decides to build a large warehouse and the low demand scenario occurs, he/she can reduce prices and that would result in a payoff of $22.0, while a payoff of $-12.0 results if he/she did nothing. If a low demand scenario occurs and manager had decided to go with a smaller warehouse, she/he can reduce prices and achieve a payoff of $27.0 while a payoff of $-5.0 results if manager did nothing (all payoffs are in 100K). Perform the first stage of the folding back method and compute the payoff (EV) for a large warehouse/Low demand case.

a.

32

b.

12

c.

44

d.

22