Reference no: EM131277791

This problem is based on an example described by Hartman (2007). Renesas Electronics is planning to expand a factory in which it makes ?ash memory. The factory can currently make 9,000 wafers per month. The expansion will increase capacity to 12,000 wafers per month. It can sell everything it makes. The expansion can start now or be delayed. If it is delayed, the frm can decide 3 months from now whether to start expansion at that point or to wait another 3 months (6 months from now). During the expansion, which will take 3 months, the factory will still make 9,000 wafers per month. Because the frm origi nally planned to start 6 months from now, they will have to pay $2,000,000 extra to start the expansion 3 months early (3 months from now) or $4,000,000 extra to start the expansion 6 months early (now). The proft per wafer in the next 6 months is uncertain and will not be known until after the decision to start now or delay is made. If the expansion is delayed (not started now), then this value will be known before the next decision. The frm estimates that the probability that proft will be $320 per wafer (for the next six months) equals 60%; the probability that proft will be $310 per wafer (for the next 6 months) equals 40%. After 6 months, the proft per wafer will be $300. Because the frm will certainly expand, ignore the cost of expansion. Consider the proft over the next 12 months (the proft from the wafers sold minus any extra cost for starting early). Draw a decision tree that corresponds to the situation faced by Renesas Electronics. Evaluate this tree to determine the optimal policy. What is the expected proft?