Volkswagen is considering opening an Assembly Plant in Chattanooga, Tennessee, for the production of its 2012 Passat, tailored for the US market. The CEO of the company is considering two potential options for the size of the plant: one is a large size with a projected annual production of 150,000 cars, and the other one is a smaller size plant, which is cheaper to build, but can only produce up to 80,000 cars per year. Depending on the expected level of demand for these cars in the US, Volkswagen has to decide which option is more profitable. The discount rate is 6% and for simplicity purposes, the CEO is only evaluating a two-year horizon. The initial factory setup cost, the expected demand scenarios, profit, and probabilities are shows in the below table. Calculate the Net Present Value in each of the two options. Which option should the CEO choose and why? Please, show all your calculations.…
b. Evaluate the profitability versus risk trade-offs of these three policies. Would you rate each one “low”, “medium”, or “high” with respect to profitability? Would you rate each one “low”, “medium”, or “high” with respect to risk?…
The Gorman manufacturing company is trying to decide whether to manufacture a component part or to purchase it. In order to make this decision we need to calculate the Expected Monetary Value for each probability. The highest EMV will be the best decision (Satyaprasad, Nirmala, & Saha, 2012). So, EMV for manufacture is= -20(.35) + 40(.35) + 100(.30) = -7+ 14+ 30 = 37. EMV for purchase is= 10(.35) + 45(.35) + 70(0.30) = 3.5 + 15.75 + 21 = 40.25. So, the expected monetary value for purchase option is higher that the manufacture option. So, purchasing the component part will be the best decision.…
Choices values are binary and were chosen at random before the Excel Solver was computed. Number of gallons were given by the question alongside its respective probability. Revenue was also highlighted in the question. Demand one is $2 for one gallon, demand one for two gallons is $2-0.5=1.5 in which 0.5 is the opportunity cost, demand three for three gallon is 2-0.5-0.5=1. Same method is followed for demand two and three. Expected revenue of store one at one gallon is calculated by Demand one at one gallon*probability at one gallon + demand two at one gallon * probability at two gallons + demand three at one gallon * probability at three gallons. In numerical it will be (2*.06+2*0+2*0.4=2). Same method was considered to calculate expected revenue for all stores at two and three gallons respectively. Calculation are given below. Objective function was calculated by using Excel "SUMPRODUCT" of choices and expected revenue.…
Jane Rodney, President of the Rodney development company, is creating a shopping centre at Jackpine Mall. She had already decided on a few stores to include within the shopping centre but could not decide on the next few. With our knowledge of decision modeling, we can achieve the most feasible solution for Jane. We based the decision of allocating the remaining few stores through our Present Value function:…
a.|Find the best decision variable values that satisfy all constraints.| b.|Find the values of the decision variables that use all available resources.| c.|Find the values of the decision variables that satisfy all constraints.| d.|None of the above.| ____B 3. Limited resources are modeled in optimization problems as a.|an objective function.| b.|constraints.| c.|decision variables.| d.|alternatives.| __A__ 4. Retail companies try to find a.|the least costly method of transferring goods from warehouses to stores.| b.|the most costly method of transferring goods from warehouses to stores.| c.|the largest number of goods to transfer from warehouses to stores.| d.|the least profitable method of transferring goods from warehouses to stores.| _B___ 5. Most individuals manage their individual retirement accounts (IRAs) so they a.|maximize the amount of money they withdraw.| b.|minimize the amount of taxes they must pay.| c.|retire with a minimum amount of money.| d.|leave all their money to the government.| _A___ 6.…
Larry Brownlow decides to use a general research firm, Mansion and Associates. Mr. Brownlow submits a request for proposal to John Rome, a senior research analyst. Mr. Rome provided Larry different research studies to choose from in order to make his decision whether to buy the distributor or steer away from the opportunity. John Rome sent a proposal to Larry that had many different studies and stages. Being limited to spending $15,000 on research, Larry cannot simply buy all the studies that Manson and Associates provided. The studies will deal with secondary data and primary data and seek to provide Mr. Brownlow with the best analysis of whether to invest or not. Not only does Larry have to think about what studies to purchase, he must also realize that the total investment is $800,000, which is a lot of money and needs a lot of analysis in order to be sure if this is the correct decision. Larry also only has a few days to decide what studies to use, so he must consider all of the studies and make a decision rather quickly.…
They are: 1.‘Match my Doll’ Clothing Line, 2.Retail Store Expansion in Northeast and 3.New Doll Film / DVD. We choose these three projects because they are all high or medium risks. Usually the high risk comes with the high return. So we want to see what will happen if we all choose high or medium risker projects. Even if these three projects do not have good 1 Yr. EBITDA, it has the highest three 5 Yr. EBITDA. So when we choose these three projects we do not want it went well in the first year but for the future benefits. After a whole year running, in 2010 the net income was 12.58 million and it was less than 2009. The revenue became 252.42 million and the APV we got this year was 319.38. This is not a problem now because the future view form the financial analysis and project details were going very…
Explain how you found an answer to Question 3 and why you think your answer gives the maximum profit. I know this because this is the highest point in the feasible region. I it’s hard to tell exactly just by graphing so the problem must be solved algebraically. I…
This creates a total a profit of $1,380,000 per year, when we add the extra $300,000 from the beginning; we get 1,680,000 total profit per year. When we take out the expense of labor, which is $584,000 the final amount that we earn is $1,096,000. While the total amount for the lumber kings is $94,000 for the period. When I calculated how much we would have made in the time of baseball season, it would be $697,200. Overall, the amount of profit we made would exceed the amount of the other location. Although we collect an opportunity cost of an 85% profit increase, by choosing the Erickson center location. Based on all the results this is the Erickson center is the best choice\for the act of…
Given a product price, as well as fixed and variable costs at different production levels, be able to determine whether the firm earns an economic profit, breaks even, or incurs an economic loss at the best possible production level. Also be able to determine how much the profit or loss will be (similar to a question you had on Quiz 1).…
In order to reach to the most cost effective alternative, a decision tree was performed using the information gathered from all sources including costs and probabilities. Along with it, a sensitivity analysis was completed which helped me determine the effect a change in costs would have on the final decision.…
One purpose of this course is to integrate economic concepts and business decision making. Managers must make decisions based on available information, theoretical knowledge, and experience. This week’s information may help you understand that decisions must often be made based on limited information regarding the direction of the company, which affects revenue, pricing, and market stability.…
This technique is used because of its importance. There are two very basic models used for decision analysis - decision tables and decision trees. This module contains a model for a general decision table; a model for entering a decision tree in tabular form; an exciting, new model with a graphical user interface for decision trees; and a model for creating a decision table for demand/supply or one period inventory situations. The decision tree model presented is important it shows the validity of the project. It is easy to understand the reliability and validity of the project.…
How did the economics change? Now more and more companies do the cooperation under the TCE concept. McNutt (2010) defined within managerial economics, the Transactions cost economics (TCE) approach and analysis examine this phenomenon through the understanding that firms compare the cost of internal co-ordination to the cost of using market (transaction costs) in deciding how to co-ordination economics exchange in order to optimize efficiency.…