Question: 4. You are making a make-or-buy decision about an item that you sell for $12. If you outsource this item, it will cost you

4. You are making a make-or-buy decision about an item that you

4. You are making a make-or-buy decision about an item that you sell for $12. If you outsource this item, it will cost you $5 each. If you make the item, you have two choices: a) buy a new machine for $135,000 and have a unit cost of $4.25 or b) buy an older model machine for $100,000 and the unit cost is $4.75 each. There is a 45% chance you will sell 75,000 units, and a 55% change you will sell 100,000 unites. a) Draw the decision tree appropriate to the alternatives and outcomes stated b) Calculate the EMV for all three options. Which is the best choice?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

GIVEN EXCEL FORMULA B EMV of Buy 045525000055700000 621... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

A make or buy decision is being considered for a part that has been purchased from suppliers in the past. The savings are estimated to be $15,000 per year. The equipment to produce the part would...

You are making a hotel reservation and are offered a choice of two rates. The advanced purchase rate is $ 100, but your credit card will be charged immediately and there is no refund, even if you...

You are making a presentation to the board of directors of HugeCo about the merits of acquiring Bitty, Ltd., an important supplier. One board member, knowing that you are a tax specialist, asks you...

smoothing? (6 marks) 4 You are making a make-or-buy decision about an item that you sell for $12. If you outsource this item, it will cost you $5 each. If you make the item, you have two choices: a)...

4 You are making a make-or-buy decision about an item that you sell for $12. If you outsource this item, it will cost you $5 each. If you make the item, you have two choices: a) buy a new machine for...

You are making a make-or-buy decision about an item that you sell for $12. If you outsource this item, it will cost you $5 each. If you make the item, you have two choices: a) buy a new machine for...

1)Reading 11: What is an expected monetary value? How does the EMV contrast to the monetary value? Why is it important for a decision maker to ignore irrelevant data? How sensitive is any decision to...

Analyze the market capitalization of Company AA using the following data: Number of Outstanding Shares: 1,000,000 Market Price per Share: $50.00 Calculate the market capitalization for Company AA.

Tariq manages a database for ABC Corp. As a database manager, he is responsible for collecting all compliance data and entering the information into an excel spreadsheet. He is a salaried employee,...

Suppose an ATM of a community bank dispenses $100,000 per week. Restocking the ATM costs $500. The bank has amazing opportunities for investment, so the cost of holding $1 for a year in an ATM is $1....

A group of faculty was interested in predicting the average incoming SAT scores of students, based on their high school GPA. What is the correct type of test that should be used to analyze this data?...

Kyra, a single taxpayer, owns and operates a bakery (as a sole proprietorship). The business is not a "specified services" business. In 2023, the business pays $60,000 of W-2 wages, has $150,000 of...

Autumn wants to start a business. She has two goals. First, she doesn't have much money but she's ready to get business up and running with the least possible hassle and expense. Second, she wants to...

Carter Industries has two divisions the West Division and the East Division Information relating to the divisions for the year just ended is as follows: West 37000 Units produced and sold Selling...

Chris Zulliger was a chef at the Plaza Restaurant in the Snowbird Ski Resort in Utah. The restaurant is located at the base of a mountain. As a chef for the Plaza, Zulliger was instructed by his...

Maple, Inc., is an S corporation with a single shareholder, Bob Maple. Bob believes that his stock basis in the entity is $50,000, but he has lost some of the records to substantiate this amount....

Sean, a shareholder of Crimson Corporation, is in the 35% tax bracket. This year, he receives a $7,000 qualified dividend from Crimson. Sean has investment interest expense of $16,000 and net...

What is the purpose of the three rules that implement the economic effect test?

A sample of N independent observations is taken from a normally distributed population, with N > 2. Denote the N observations by Xh X2, , XN. You want to estimate the mean of the population, ji....

Using Equations (6.4.3) and (6.4.4), derive formula (6.4.5).

Show that for a sample of size N from a Poisson process, the sample mean is an unbiased estimator of both the mean and the variance of the process.