A manager is trying to decide whether to buy one machine ortwo. If only one machine is purchased and demand provesto be excessive, the second machine can be purchased later.Some sales would be lost, however, because the lead timefor delivery of this type of machine is 6 months. In addition,the cost per machine will be lower if both machines are pur-chased at the same time. The probability of low demand isestimated to be 0.30 and that of high demand to be 0.70. Theafter-tax NPV of the benefits from purchasing two machinestogether is $90,000 if demand is low and $170,000 if demandis high.If one machine is purchased and demand is low, the NPV is$120,000. If demand is high, the manager has three options:(1) doing nothing, which has an NPV of $120,000; (2) subcon-tracting, with an NPV of $140,000; and (3) buying the secondmachine, with an NPV of $130,000.a. Draw a decision tree for this problem.b. What is the best decision and what is its expected payoff?
Critical Path Method
The critical path is the longest succession of tasks that has to be successfully completed to conclude a project entirely. The tasks involved in the sequence are called critical activities, as any task getting delayed will result in the whole project getting delayed. To determine the time duration of a project, the critical path has to be identified. The critical path method or CPM is used by project managers to evaluate the least amount of time required to finish each task with the least amount of delay.
Cost Analysis
The entire idea of cost of production or definition of production cost is applied corresponding or we can say that it is related to investment or money cost. Money cost or investment refers to any money expenditure which the firm or supplier or producer undertakes in purchasing or hiring factor of production or factor services.
Inventory Management
Inventory management is the process or system of handling all the goods that an organization owns. In simpler terms, inventory management deals with how a company orders, stores, and uses its goods.
Project Management
Project Management is all about management and optimum utilization of the resources in the best possible manner to develop the software as per the requirement of the client. Here the Project refers to the development of software to meet the end objective of the client by providing the required product or service within a specified Period of time and ensuring high quality. This can be done by managing all the available resources. In short, it can be defined as an application of knowledge, skills, tools, and techniques to meet the objective of the Project. It is the duty of a Project Manager to achieve the objective of the Project as per the specifications given by the client.
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 6 months. In addition,
the cost per machine will be lower if both machines are pur-
chased at the same time. The probability of low demand is
estimated to be 0.30 and that of high demand to be 0.70. The
after-tax
together is $90,000 if demand is low and $170,000 if demand
is high.
If one machine is purchased and demand is low, the NPV is
$120,000. If demand is high, the manager has three options:
(1) doing nothing, which has an NPV of $120,000; (2) subcon-
tracting, with an NPV of $140,000; and (3) buying the second
machine, with an NPV of $130,000.
a. Draw a decision tree for this problem.
b. What is the best decision and what is its expected payoff?
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