What is the expected monetary value

Assignment Help Operation Management

Reference no: EM13904639

A manager must decide how many machines of a certain type to buy. The machines will be used to manufacture a new gear for which there is increased demand. The manager has narrowed the decision to two alternatives: buy one machine or buy two. If only one machine is purchased and demand is more than it can handle, a second machine can be purchased at a later time. However, the cost per machine would be lower if the two machines were purchased at the same time. The estimated probability of low demand is .30, and the estimated probability of high demand is .70. The net present value associated with the purchase of two machines initially is $79,200 if demand is low and $130,600 if demand is high. The net present value for one machine and low demand is $99,000. If demand is high, there are three options. One option is to do nothing, which would have a net present value of $124,680. A second option is to subcontract; that would have a net present value of $115,650. The third option is to purchase a second machine. This option would have a net present value of $123,540.

a. What is the EMV (expected monetary value) for alternative buy one machine? The EMV is $Blank 1 .

b. What is the EMV (expected monetary value) for alternative buy two machines? The EMV is $Blank 2 .

c. How many machines should the manager purchase initially? The manager should purchase Blank 3 machine(s) initially.

Reference no: EM13904639

Questions Cloud

Prepare journal entries to record each of above transaction : Prepare journal entries to record each of the above transactions. Post the entries to the ledger accounts. Draw up a trial balance at 31 December year 1.

Appropriate analysis period for problem : There are two choices for replacing a punch press. The basic model has a useful life of 8 years while the deluxe model has a useful life of 12 years. Whats the most appropriate analysis period for this problem?

Examine the role of theory in management : Identify and discuss the assumptions and limitations that readers of this article need to be aware of when they read it - Discuss what Petriglieri means by the statement

Find explanation of why soda cans in hot arizona summer time : Find an explanation of why the soda cans in the hot Arizona Summer time can explode in your car truck in you leave them there during a full afternoon. (Data: K(Henry) = 1.538 x 104 torr dm3 / g, solubility of CO2 in water = 4.78 x10-2 g / dm3). No..

What is the expected monetary value : A manager must decide how many machines of a certain type to buy. The machines will be used to manufacture a new gear for which there is increased demand. The manager has narrowed the decision to two alternatives: What is the EMV (expected monetary ..

According to bandura-perceived self-efficacy : According to Bandura, perceived self-efficacy can be defined as people’s judgments of their own capabilities to organize and execute courses of action required to attain designated types of performances.

Three reasons bonnie should use such service : Bonnie Carson has owned and managed her gift and card shop in the Central Shopping Mall for three years. She has a merchant account with her local bank to process payment card charges at her shop in the mall. Identify at least three reasons Bonnie sh..

Benefits of learning organizational behavior : We are not arguing that all business press articles-or all studies done by organizations-are inaccurate. But these examples do illustrate one of the benefits of learning organizational behavior. Put on your investigator hat, ask questions, analyze..

Blue cross and blue shield system : Blue Cross and Blue Shield System (BCBS), which provides healthcare insurance to nearly 33 percent of Americans, is a successful user of predictive analytics. It has established a database that contains more than 100 million medical claims.

User Account

All Pages