Bee is an electronics manufacturer. They need to decide on their product strategy for next year....
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Bee is an electronics manufacturer. They need to decide on their product strategy for next year. They can either continue their usual manufacturing, OR introduce a new product: luxury headphones called Drips by Bee. These options are mutually exclusive. If Bee choose to continue their usual manufacturing, they know they will earn $500,000. There is no uncertainty or risk involved (they've been doing this for a long time). If, instead, Bee choose to launch Drips by Bee, there may be problems related to shipping and manufacturing. I If the products are high quality and on time, Drips earns $1,000,000. There is a 50% chance shipping will be delayed. This would cost Drips $250,000. There is a 25% chance of manufacturing errors. This costs Drips $500,000. It is possible for there to be manufacturing errors AND for shipping to be delayed. • This question is intentionally simple. You do not need to worry about MARR. ● ● ● ● a. (6 marks) Construct a decision tree for the situation. Label all nodes, and attach outcome values to the terminal nodes (e.g. $1,000,000 in the case where shipping is not delayed and there are no manufacturing errors, or $750,000 in the case where shipping is delayed but there are no manufacturing errors) b. (4 marks) Use the decision tree you drew and your knowledge of expected value to calculate the expected income for Bee to the nearest whole dollar. Expected income for Bee: $ Work: 4 Bee is an electronics manufacturer. They need to decide on their product strategy for next year. They can either continue their usual manufacturing, OR introduce a new product: luxury headphones called Drips by Bee. These options are mutually exclusive. If Bee choose to continue their usual manufacturing, they know they will earn $500,000. There is no uncertainty or risk involved (they've been doing this for a long time). If, instead, Bee choose to launch Drips by Bee, there may be problems related to shipping and manufacturing. I If the products are high quality and on time, Drips earns $1,000,000. There is a 50% chance shipping will be delayed. This would cost Drips $250,000. There is a 25% chance of manufacturing errors. This costs Drips $500,000. It is possible for there to be manufacturing errors AND for shipping to be delayed. • This question is intentionally simple. You do not need to worry about MARR. ● ● ● ● a. (6 marks) Construct a decision tree for the situation. Label all nodes, and attach outcome values to the terminal nodes (e.g. $1,000,000 in the case where shipping is not delayed and there are no manufacturing errors, or $750,000 in the case where shipping is delayed but there are no manufacturing errors) b. (4 marks) Use the decision tree you drew and your knowledge of expected value to calculate the expected income for Bee to the nearest whole dollar. Expected income for Bee: $ Work: 4
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Related Book For
Personal Finance Building Your Future
ISBN: 978-0073530659
1st edition
Authors: Robert B. Walker, Kristy P. Walker
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