OPM 200 001 (Operations Management) - Winter 2022 Homework: = Homework #3 (Chapter 5) Question 14, Problem 21 Part 2 of 2 HW Score: 29.17%, 7 of 24 points O Points: 0 of 3 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 0.20 and that of high demand to be 0.80. The after-tax NPV of the benefits from purchasing 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 NPV is $100,000. If demand is high, the manager has three options: (1) doing nothing, which has an NPV of $120,000; (2) subcontracting, with an NPV of $140,000; and (3) buying the second machine, with an NPV of $130,000. a. Choose the correct decision tree for this problem. Note that each payoff is given in thousands of dollars. . Low demand 100 Do nothing 90 Do nothing 12 12 Buy 1 machine 1 Buy 1 machine Subcontract High demand 14 14 Low demand 0.20 High demand 0.80 Low demand 0.20 High demand 0.80 1 Buy 2 90 machines Subcontract Buy 2 100 machines 13 Low demand 13 Buy 2 Buy 2 machines 180 machines High demand 180 Xc. OD Low demand 0.20 100 Do nothing Buy 1 machine 12 Buy 2 machines 12 14 Subcontract High demand 0.80 14 Low demand 100 Do nothing 0.80 High demand Subcontract 0.20 Low demand Buy 2 90 machines 0.80 High demand 180 0.20 13 Buy 2 machines Buy 2 machines 13 1 Buy 1 machine Low demand 0.20 90 b. What is the best decision and what is its expected payoff? Best decision is to buy machine(s) and its expected payoff is $[ (Enter your responses as integers.)