Please provide correct answer for part B.
A manager is trying to decide whether to buy one machine or two.
If only one is purchased and demand proves to be_ excessive, the
second machine can be purchased later. Some sales will be_ lost,
however, because the lead time for producing this type of machine
is six months. In_ addition, the cost per machine will be lower if
both are purchased at the same time.
The probability of low demand is estimated to be 0.30. The_
after-tax net present value of the benefits from purchasing the two
machines together is _$ 70000 if demand is low and _$ 170000 if
demand is high.
If one machine is purchased and demand is_ low, the net present
value is _$120,000. If demand is_ high, the manager has three
options. Doing nothing has a net present value of _$ 100,000_;
_subcontracting, _$150,000_; and buying the second_ machine,
a. Choose the correct decision tree for this problem. Note that
each payoff is given in thousands of dollars.
b. How many machines should the company buy_ initially?
What is the expected payoff for this_ alternative?
A manager is trying to decide whether to buy one machine or two. If only one is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales will be lost, however, because the lead time for producing this type of machine is six months. In addition, the cost per machine will be lower if both are purchased at the same time. The probability of low demand is estimated to be 0.30. The after-tax net present value of the benefits from purchasing the two machines together is $70,000 if demand is low and $170,000 if demand is high. If one machine is purchased and demand is low, the net present value is $120,000. If demand is high, the manager has three options. Doing nothing has a net present value of $100,000; subcontracting, $150,000; and buying the second machine, $130,000. a. Choose the correct decision tree for this problem. Note that each payoff is given in thousands of dollars. OA. B. Low demand -70 Do nothing Buy 1 machine -100Q 100 Buy 1 machine High demand Subcontract Buy 2 Low demand -120 machines High demand 170 – 150 130 Low demand 120 Do nothing 0.30 High demand Subcontract 0.70 Buy 2 Low demand -70 machines 0.30 High demand 470 0.70 130 Buy 2 machines Buy 2 machines OC. OD. Low demand 0.30 -120 Buy 2 machines Buy 1 machine Low demand 120 Do nothing 0.30 High demand Subcontract 0.70 Buy 1 Low demand -70 machine 0.30 High demand 0.70 -130 High demand 0.70 Do nothing Subcontract Buy 2 machines Buy 1 machine Buy 2 machines 170 Low demand 0.30 -70 b. How many machines should the company buy initially? What is the expected payoff for this alternative? Best decision is to buy machine(s) and its expected payoff is $ . (Enter your responses as integers.)
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