Homework 2.pdf - Homework 2 ISOM 2700 Operations Management Spring 2018 Full Name Student ID Section(circle one L3(3:00 pm class or L4(4:30 pm class Due

# Homework 2.pdf - Homework 2 ISOM 2700 Operations Management...

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Homework 2 ISOM 2700 Operations Management Spring 2018 Full Name: Student ID: Section (circle one): L3 (3:00 pm class) or L4 (4:30 pm class) Due at the start of class on Thursday, March 8 th. , 2018 Homework assignments are to be done individually, and without the use of anyone else’s solutions. You may obtain tips/tutorials from the internet but soliciting help from others online or in person is not permitted. Cheating will strictly not be tolerated. Explain clearly how you derive your solutions. Your solutions will be graded for the clarity of your arguments, in addition to correctness of the final answer.
1. Expando, Inc., is considering the possibility of building an additional factory that would produce a new addition to their product line. The company is currently considering two options. The first is a small facility that it could build at a cost of \$6 million. If demand for new products is low, the company expects to receive \$10 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects \$12 million in discounted revenues using the small facility. The second option is to build a large factory at a cost of \$9 million. Were demand to be low, the company would expect \$10 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be \$14 million. In either case, the probability of demand being high is .40, and the probability of it being low is .60. Not constructing a new factory would result in no additional revenue being generated because the current factories cannot produce these new products. Construct a decision tree to help Expando make the best decision.
2. A manager has learned that annual profits from four alternatives being considered for

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• Spring '17
• wert
• Control Chart, ISOM, small facility

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