OA. OB. Low demand -90 Do nothing 110 Q 110 Buy 1 machine High demand Buy 1 machine Subcontract 140 C 140 Low demand 100 Do nothing 0.20 High demand Subcontract 0.80 Buy 2 Low demand -90 machines 0.20 High demand 180 0.80 Buy 2 100 machines Low demand 120 -120 Buy 2 machines Buy 2 machines High demand 180 OC. OD. Low demand 0.20 100 Do nothing 100 Do nothing Buy 1 machine 110 Buy 2 machines 110 Subcontract 140 High demand 0.80 140 Subcontract Buy 2 machines Low demand 0.20 High demand 0.80 Low demand 0.20 High demand 0.80 Buy 1 90 machine 120 -120 Buy 2 machines Buy 1 machine Low demand 0.20 -90 180 b. How many machines should the company buy initially? What is the expected payoff for this alternative? A manager 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 $90,000 if demand is low and $180,000 if demand is high. If one machine is purchased and demand is low, the net present value is $100,000. If demand is high, the manager has three options. Doing nothing has a net present value of $110,000; subcontracting, $140,000; and buying the second machine, $120,000 a. Choose the correct decision tree for this problem. Note that each payoff is given in thousands of dollars. OA. OB. 0 110 110 Buy 1 machine Buy 1 machine 140 G 140 Low demand -90 Do nothing High demand Subcontract Buy 2 Low demand 100 machines High demand 180 Low demand 100 Do nothing 0.20 High demand Subcontract 0.80 Low demand Buy 2 0.20 -90 machines High demand 180 0.80 120 120 Buy 2 machines Buy 2 machines OD Low demand 0.20 100 Do nothing 110 Buy 1 machine 100 Do nothing Subcontract Buy 2 machines Low demand 0.20 High demand 0.80 110 Subcontract 140 High demand An R1