Operations Management: Processes and Supply Chains (11th Edition)
11th Edition
ISBN: 9780133872132
Author: Lee J. Krajewski, Manoj K. Malhotra, Larry P. Ritzman
Publisher: PEARSON
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Chapter A, Problem 23P
a
Summary Introduction
Interpretation: Decision tree
Concept Introduction: Decision tree is a pictorial representation showing attributes of an outcome. It extends from nodes to different branches showing a series of probability.
b
Summary Introduction
Interpretation:Number of machines to be bought and expected payoff.
Concept Introduction: Probability of an event is how likely or how possibly an event take place. It shows an outcome of event which ranges between 0 and 1.
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A manager is trying to decide whether to buy one machineor two. If only one is purchased and demand proves to beexcessive, the second machine can be purchased later. Somesales will be lost, however, because the lead time for produc-ing this type of machine is six months. In addition, the costper machine will be lower if both are purchased at the sametime. The probability of low demand is estimated to be 0.20.The after-tax net present value of the benefits from purchas-ing the two machines together is $90,000 if demand is lowand $180,000 if demand is high.If one machine is purchased and demand is low, the netpresent value is $120,000. If demand is high, the managerhas three options. Doing nothing has a net present value of$120,000; subcontracting, $160,000; and buying the secondmachine, $140,000.a. Draw a decision tree for this problem.b. How many machines should the company buy initially?What is the expected payoff for this alternative?
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Group of answer choices
Chapter A Solutions
Operations Management: Processes and Supply Chains (11th Edition)
Ch. A - Mary Williams, owner of Williams Products, is...Ch. A - Prob. 2PCh. A - An interactive television service that costs $10...Ch. A - A restaurant is considering adding fresh brook...Ch. A - Spartan Castings must implement a manufacturing...Ch. A - A news clipping service is considering...Ch. A - Prob. 7PCh. A - Techno Corporation is currently manufacturing an...Ch. A - The Tri-County Generation and Transmission...Ch. A - Prob. 10P
Ch. A - Tri-County G&T sells 150,000 MWh per year of...Ch. A - The Forsite Company is screening three ideas for...Ch. A - Prob. 13PCh. A - Prob. 14PCh. A - Prob. 15PCh. A - Build-Rite Construction has received favorable...Ch. A - Prob. 17PCh. A - Prob. 18PCh. A - Prob. 19PCh. A - Prob. 20PCh. A - Prob. 21PCh. A - Prob. 22PCh. A - Prob. 23PCh. A - Prob. 24P
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