You are deciding between continuing to buy preassembled bikes and manufacturing your bikes. Thereare a lot of changes happening in the economy and you believe there is a 20% chance of a strongoutlook and 50% flat and 30% weak over the next 2 years. You are committed to selling 500 bikesannually. When the economy is strong you can sell at full price, but you will need to apply differentlevels of discounts depending on the economy.Option 1:Preassembled bike profit ranges from $500 in a strong economy, $425 if the economy is flat and $200when weak. 500 bikes each in 2023 and 2024.Option 2:You will buy components and assemble them yourself. You need to invest $100,000 in remodeling aspace to do the work; however, earn $50 more profit for each bike ($550, $475, and $250). (Samevolume as above)What do you recommend? Use a decision tree to explain which option is the most profitable after 2years.

Annual sales = 500 bikes Sales over 2 year period = 2 x 500 = 1000 bikes

Answered: You are deciding between continuing to…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 77P

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