Electronics with printed circuit and motherboards

Reference no: EM13820045

BUYU Manufacturing has been contracted to provide SAEL Electronics with printed circuit and motherboards (PC) boards under the following terms:

100,000 PC boards will be delivered to SAEL in one month.
In 3 months, SAEL has an option to take the delivery of an additional 100,000 boards by giving BUYU a 30-day notice.
SAEL will pay $5 for each board it takes.

BUYU manufactures the PC boards through a process called batching, and manufacturing costs are as follows:

The manufacturing batch run has a fixed setup cost of $250,000, regardless of the run size.
The marginal manufacturing cost is $2.00 per board, regardless of the size of the batch run.

BUYU must decide whether it should manufacture all 200,000 PC boards now, or if it should manufacture 100,000 now and the other 100,000 boards only if SAEL decides to buy them. If BUYU manufactures 200,000 now and SAEL does not exercise its option, then BUYU will lose the manufacturing cost of the extra 100,000 boards. BUYU believes that there is a 50% chance that SAEL will exercise its option to buy the additional 100,000 PC boards.

Discuss the potential profit of manufacturing all 200,000 boards now.
Draw a decision tree for the decision that BUYU faces.
If BUYU uses its expected profit as the basis for its decision, determine the preferred course of action.
Determine the range of values of the probability that SAEL will exercise its option, making the decision found in part c as optimal, and determine the expected value of perfect information about whether SAEL will exercise its option.
Assume now that BUYU is constantly risk averse with a risk tolerance of $100,000, and answer parts 3 and 4 again.

Reference no: EM13820045

Questions Cloud

Describe how the concept of multifactorial etiology : Describe how the concept of multifactorial etiology relates to the natural history of disease and the different levels of prevention.

Payment expectations for type : Research and discuss the differences and importance of: IPPS, OPPS, MPFS and DMEPOS. Which provider type is paid by which method? What are the payment expectations for each type? What is the potential implication of a case mix involving IPPS, OPPS..

Embark on an international negotiation : You are about to embark on an international negotiation. You work for a multinational oil company, and your company has decided to set up a joint venture with Saudi Arabia and another one with a company in Russia. You are leading the negotiations.

Analyzing capital expenditures : Assume that you have received a capital expenditure request for $52,000 for plant equipment and that you are required to do a justification analysis using capital budgeting techniques.

Electronics with printed circuit and motherboards : BUYU Manufacturing has been contracted to provide SAEL Electronics with printed circuit and motherboards (PC) boards under the following terms:

Question regarding the basic time value of money : It is a common fact that many lottery winners are "broke" sooner than later. If you won a $1,000,000 lottery, would you want to collect the lump sum winnings today or receive the monies over time?

Review regarding falls in construction : You have had the opportunity to review research topics regarding falls in construction, select one, and briefly reflect on the topic.

Internet about the topic global environmental issues : Do some searching on the internet about the topic Global Environmental Issues. Find one good article on the topic , read it and submit a 1,5 page written summary of main ideas in the article. Include the article itself or a link to the article so ..

How is the organization a potential resource to you : Pick one that you think is most relevant to your career goals and tell me why. How is the organization a potential resource to you?

User Account

All Pages