Use a decision tree to model Trip Logistics' option to not sign a lease and thus...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Use a decision tree to model Trip Logistics' option to not sign a lease and thus get all warehousing space from the spot market as needed with the following modifications: The planning horizon is 2 years (not 3 as used in our book) 1000 sq. ft. of warehouse space needed for 1000 units of demand Current demand = 100,000 units per year • Binomial uncertainty: Demand (D) can go up by 15% with probability p = 0.5 or down by 10% with 1-p = 0.5 • Lease price = $1.00 per sq. ft. per year Spot market price (S) = $1.20 per sq. ft. per year Spot prices can go up by 10% with p = 0.5 or down by 7% with 1-p = 0.5 • Revenue = $1.22 per unit of demand • k= 0.05 (rate of return) What is the expected NPV of not signing the lease? What is the expected NPV if the rate of return k = 0.10? That is, evaluate the decision tree with k-0.10. Hint: the decision tree should look like this; then add the payoffs and compute the expected NPV of not signing the lease. D=100,S=$1.20 k=0.05 D=115, S=$1.32 25 D=115, S-$1.116 25 D-90, S-$1.32 25 D=90, S=$1.116 25 Use a decision tree to model Trip Logistics' option to not sign a lease and thus get all warehousing space from the spot market as needed with the following modifications: The planning horizon is 2 years (not 3 as used in our book) 1000 sq. ft. of warehouse space needed for 1000 units of demand Current demand = 100,000 units per year • Binomial uncertainty: Demand (D) can go up by 15% with probability p = 0.5 or down by 10% with 1-p = 0.5 • Lease price = $1.00 per sq. ft. per year Spot market price (S) = $1.20 per sq. ft. per year Spot prices can go up by 10% with p = 0.5 or down by 7% with 1-p = 0.5 • Revenue = $1.22 per unit of demand • k= 0.05 (rate of return) What is the expected NPV of not signing the lease? What is the expected NPV if the rate of return k = 0.10? That is, evaluate the decision tree with k-0.10. Hint: the decision tree should look like this; then add the payoffs and compute the expected NPV of not signing the lease. D=100,S=$1.20 k=0.05 D=115, S=$1.32 25 D=115, S-$1.116 25 D-90, S-$1.32 25 D=90, S=$1.116 25
Expert Answer:
Answer rating: 100% (QA)
1 The correct calculation for the total cost of materials to be purchased during June is as follows ... View the full answer
Related Book For
Calculus For Scientists And Engineers Early Transcendentals
ISBN: 9780321849212
1st Edition
Authors: William L Briggs, Bernard Gillett, Bill L Briggs, Lyle Cochran
Posted Date:
Students also viewed these general management questions
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
According to a recent Wall Street Journal article, Sky-high gasoline prices, new commuting habits and a tough car-buying market are sending more people shopping for electric scooters. FlowRide...
-
Christina is trying to save money in her bank account. She decides that she can deposit $1000 each month into the account. The account earns 2.3% interest each month. How much money will be in the...
-
If this project had been a replacement rather than an expansion project, how would the analysis have changed? Think about the changes that would have to occur in the cash flow table.
-
The cylinders and pistons for a certain internal combustion engine are manufactured by a process that gives a normal distribution of cylinder diameters with a mean of 41.5 cm and a standard deviation...
-
To be rescued from the roof of a burning building, a \(70-\mathrm{kg}\) man must be able to jump straight up and catch hold of a rope ladder hanging from a helicopter. He has to raise his center of...
-
Sardel Company reported net income of $29,975 for 2007. During all of 2007 the company had 1,000 shares of 10%, $100 par, nonconvertible preferred stock outstanding, on which the years dividends had...
-
Patrick Ireland purchased a passenger automobile for his self-employed business on June 1, of the current tax year for $17,000. During the year, he uses the automobile 80 percent of the time for...
-
As the bookkeeper of Petes Plowing of Fredericton, you have been asked to complete the entire accounting cycle for Pete from the following information Adjustment Data a. Snow supplies on hand, $400...
-
. Pursuant to a Type C reorganization, Alice exchanged 1,000 shares in Blades, Inc., with a basis of $11,000 and a fair market value of $9,000 for stock in Razors, Inc. worth $8,500 and cash of...
-
In your opinion, does Canada have an effective system of taxation? Explain your answer.
-
What is a valid hypothesis within the scietific method? An intsrument to make observations A testable explanation for an observation Scientific jargon for a question Any potential explanation for...
-
Mr. Cardo Dalisay had the following data for taxable year 2019: (Exchange rate $1-P40) Philippines Abroad Salaries 165,000 $2,000 Income from merchandise 450,000 $6,000 Business expenses 120,000...
-
Form a business entity of your choice ,, choice a business type ( partnership, LLC, LLP, C-copr) designate a business name, its purpose, and why you chose that particular entity form ( ease for...
-
Write a C program to Create a linked list of size at least 50 nodes where each node is structured with two fields: an integer and a pointer to the next node. Adding a node in the middle, at the end...
-
The following data have been developed for the purpose of developing the aggregate sales and operations plan for a company that manufactures a single product line, using a single 8-hour shift per...
-
1-Stern observed all of the following results EXCEPT _______ in his experiment. A-one of the recombinant phenotypes was associated with an X chromosome of normal length B-the number of car, B+ male...
-
Write each repeating decimal first as a geometric series and then as a fraction (a ratio of two integers). 0.5 = 0.555...
-
Evaluate the following integrals or state that they diverge. 8 [27/ X TT sin - dx X
-
Evaluate the following integrals. J (9x2)-3 dx
-
A lending firm is considering six independent and divisible investment alternatives that can be exited with a full refund of the initial investment at any time the firm chooses. A total of $200,000...
-
True or False: In performing engineering economic analyses of replacement alternatives, it is best to perform before-tax analyses, since incorporating income tax considerations in the analysis is...
-
Rex Electric has decided to move into low-rise (2 to 8 floors) commercial building electrical wiring. After great success in upscale residential and small commercial wiring, they have identified four...
Study smarter with the SolutionInn App