Concept explainers
a)
To draw: A decision tree for the given problem.
Introduction:
Decision tree is one of the methods used in decision-making process. It would graphically represent the available alternatives and states of nature. It would also mention the payoffs and probabilities of the alternatives. It helps to choose the best alternative that would give the best result among the alternatives.
b)
To determine: Maximin alternatives
Introduction:
Maximin is the decision making method which is used to make decision under uncertainty. This method will find an alternative that maximizes the minimum outcome of every alternative or we can say that calculating the minimum outcome within the each alternative.
c)
To determine: Expected value of perfect information (EVPI) and interpret it.
Expected value of perfect information: It is the rate that a person is willing to pay to gain access to perfect information. A common area which uses expected value of perfect information is the healthcare economy. This value tries to evaluate the expected cost of the uncertainty, which can be interpreted as the expected value of perfect information
The expected value of perfect information can be calculated by using below given formula:
d)
To determine: The sensitive analysis on P (high).
Introduction
Decision table is formats or visual representations were data is expressed arranged, determined and calculated to make a effective decision making. A decision table is a tabular representation that is used to analyze decision alternatives and states of nature.
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OPERATIONS MANAGEMENT LOOSELEAF W/ CONN
- A manager is trying to decide whether to build a small, medium or large facility. Demand can be low, average, or hit, with the estimated probabilities being 0.25, 0.40, and 0.35 respectively A small facility is expected to earn an after-tax net present value of just $18,000 if demand is low. If demand is average, the small facility is expected to earn $75,000; it can be increased to medium size to earn a net present value of $60,000. If demand is high, the small facility is expected to earn $75,000 and can be expanded to medium size to earn $60,000 or to large to earn $125,000. A medium-size facility is expected to lose an estimated $25,000 if demand is low and earn $140,000 if demand is average. If demand is high, the medium-size facility is expected to earn a net present value of $150,000; it can be expanded to a large size for a net payoff of $145,000. If a large facility is built and demand is high, earnings are expected to be $220,000. If demand is average for the large facility,…arrow_forwardA manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.40, 0.35, and 0.25, respectively. A small facility is expected to earn an after-tax net present value of just $13,000 if demand is low. If demand is average, the small facility is expected to earn $15,000; it can be increased to medium size to earn a net present value of $30,000. If demand is high, the small facility is expected to earn $25,000 and can be expanded to medium size to earn $50,000 or to large size to earn $100,000. A medium-sized facility is expected to lose an estimated $50,000 if demand is low and earn $100,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $125,000; it can be expanded to a large size for a net payoff of $175,000. If a large facility is built and demand is high, earnings are expected to be $180,000. If demand is average for the large…arrow_forwardA manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.25, 0.40, and 0.35, respectively. A small facility is expected to earn an after-tax net present value of just $18,000 if demand is low. If demand is average, the small facility is expected to earn $75,000; it can be increased to medium size to earn a net present value of $60,000. If demand is high, the small facility is expected to earn 75,000 and can be expanded to medium size to earn $60,000 or to large size to earn $125,000. A medium-sized facility is expected to lose an estimated $25,000 if demand is low and earn $140,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $150,000; it can be expanded to a large size for a net payoff of $145,000. If a large facility is built and demand is high, earnings are expected to be $220,000. If demand is average for the…arrow_forward
- A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.25, 0.40, and 0.35, respectively. A small facility is expected to earn an after-tax net present value of just $18,000 if demand is low. If demand is average, the small facility is expected to earn $75,000; it can be increased to medium size to earn a net present value of $60,000. If demand is high, the small facility is expected to earn $75,000 and can be expanded to medium size to earn $60,000 or to large size to earn $125,000. A medium-sized facility is expected to lose an estimated $25,000 if demand is low and earn $140,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $150,000; it can be expanded to a large size for a net payoff of $145,000. If a large facility is built and demand is high, earningsare expected to be $220,000. If demand is average for the large…arrow_forwardA manager is trying to decide whether to build a small, medium or large facility. Demand can be low, average or high, with the estimated probabilities being 0.25, 0.40 and 0.35, respectively. A small facility is expected to earn an after-tax net present value of just $18,000 if demand is low. If demand is average, the small facility is expected to earn $75,000; it can be increased to medium size to earn a net present value of $60,000. If demand is high, the small facility is expected to earn $75,000 and can be expanded to medium $60,000 or large to earn $125,000. A medium-sized facility is expected to lose an estimated $25,000 if demand is low and earn $140,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $150,000; it can be expanded to a large size for a net payoff of $145,000. If a large facility is build and demand is high, earnings are expected to be $220,000. If demand is average for the large facility, the present…arrow_forwardA firm must decide whether to construct a small, medium or large stamping plant. A consultant’s report indicates a 0.20 probability that demand will be low and 0.80 that demand will be high. If the firm builds a small facility and demand turns out to be low, the Net Present Value (NPV) willbe $42M. If demand turns out to be high, the firm can either subcontract and realize the NPV of $42M orexpand greatly for a Net Present Value of $48M. The firm could build a medium size facility as a hedge: if demand turns out to be low, its NPV is estimated at $22M; if demand turns out to be high, the firm could do nothing and realize a NPV of $46M, or could expand and realize a NPV of $50M. If the firm builds a large facility and demand is low, the NPV will be ($20M), whereas high demand will result in a NPV of $72M. Compute the EVPI *arrow_forward
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