Homework: Homework #4 Question 5, Problem 21 Part 1 of 2 HW Score: 60%, 3 of 5 points O Points: 0 of 1 Save A manager is trying to decide whether to buy one machine or two. If only one machine is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales would be lost, however, because the lead time for delivery of this type of machine is six months. In addition, the cost per machine will be lower if both machines are purchased at the same time. The probability of low demand is estimated to be 0.30 and that of high demand to be 0.70. The after-tax NPV of the benefits from purchasing two machines together is $90,000 if demand is low and $160,000 if demand is high. If one machine is purchased and demand is low, the NPV is $120,000. If demand is high, the manager has three options: (1) doing nothing, which has an NPV of $110,000; (2) subcontracting, with an NPV of $140,000; and (3) buying the second machine, with an NPV of $120,000. a. Choose the correct decision tree for this problem. Note that each payoff is given in thousands of dollars. OA. OB. Low demand 90 Do nothing 120 Do nothing Buy 1 110 110 2 Buy 1 machine machine High demand Subcontract Subcontract 140 C 140 Buy 2 Low demand 0.30 High demand 0.70 Low demand 0.30 High demand 0.70 Buy 2 Low demand 120 120 120 machines -90 machines Buy 2 machines 3 Buy 2 machines High demand 160 160 OC. OD. a Homework: Homework #4 Question 5, Problem 21 Part 1 of 2 HW Score: 60%, 3 of 5 points O Points: 0 of 1 Sav Low demand 90 Do nothing 120 Do nothing Buy 1 110 110 Buy 1 machine machine High demand Subcontract Subcontract 140 140 Low demand 0.30 High demand 0.70 Low demand 0.30 High demand 0.70 Buy 2 120 machines Buy 2 Low demand 120 120 -90 machines Buy 2 machines 3 Buy 2 machines High demand 160 160 OC. OD. 120 Do nothing Low demand 0.30 110 Buy 1 Buy 2 machines 120 Do nothing Subcontract machine 110 140 G Subcontract Low demand 0.70 High demand 0.30 Low demand 0.70 High demand 0.30 High demand 0.70 Buy 2 -90 machines 140 120 Buy 1 120 Buy 2 machines Buy 2 machines 90 machine 160 Low demand 0.30