Question: Help with part b please! Part A is provided for reference Amanager is trying to decide whether to buy one machine or two. If only

Help with part b please! Part A is provided for reference Help with part b please! Part A is provided for

Help with part b please! Part A is provided for

Help with part b please! Part A is provided for

Amanager is trying to decide whether to buy one machine or two. If only one is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales will be lost, however, because the lead time for producing this type of machine is six months. In addition, the cost per machine will be lower if both are purchased at the same time. The probability of low demand is estimated to be 0.20. The after-tax net present value of the benefits from purchasing the two machines together is $70,000 if demand is low and $160,000 if demand is high. If one machine is purchased and demand is low, the net present value is $120,000. If demand is high, the manager has three options. Doing nothing has a net present value of $110,000; subcontracting, $150,000; and buying the second machine, $140,000 a. Choose the correct decision tree for this problem. Note that each payoff is given in thousands of dollars. B. Buy 1 machine Low demand -120 Do nothing 0.20 High demand Subcontract 2 0.80 Buy 2 Low demand -70 machines 0.20 High demand 160 0.80 110 -150 140 Buy 2 machines b. How many machines should the company buy initially? What is the expected payoff for this alternative? Best decision is to buy machine(s) and its expected payoff is $[ (Enter your responses as integers.)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
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 General Management Questions!