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Unformatted text preview: Brittany Braud
Management 368 Homework 7
June 20, 2011 . Chapter 9 - # 6:
The design and effective capacities for a local emergency facility are 300 and 260 patients per day, respectively. Currently, the emergency room processes 250 patients per day. What can you conclude from these ﬁgures? . - ~ - (mam e 0d) Dunk M = 160‘
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2. Chapter 9 - # 10 RWWUYV’ ‘1 Spectrum Hair Salon is considering expanding its business, as it is experiencing a large
growth. The question is whether it should expand with a bigger facility than needed, hoping
that demand will catch up, or with a small facility, knowing that it will need to reconsider
expanding in three years.
The management at Spectrum has estimated the following chances for demand: a The likelihood of demand being high is 0.7 0. I The likelihood of demand being low is 0.3 0.
Estimated proﬁts for each alternative are as follows: 0 Large expansion has an estimated proﬁtability of either $100,000 or $70,000,
depending on whether demand turns out to be high or low. a Small expansion has a proﬁtability of $50,000, assuming that demand is low. 0 Small expansion with an occurrence of high demand would require considering
whether to expand further. if the business expands at this point, the proﬁtability is
expected to be $90,000. If it does not expand further, the proﬁtability is expected to
be $60,000. Draw a decision tree and solve the problem. What should Spectrum do? Awgn MMMEE (one) 4% \DO )00 0 i10$ﬁD Wham ’6de
“WWW it”. 3. Magnatree is a large company that has been working on a new product. This product has tremendous potential. but Magnatree must move quickly. They have decided that they will
introduce the product in two months and have already started developing their advertising
They are sure that the product will be a success, with a possibility that it will be a huge
success. They recently found out that another company, Shadycorp, has some unique
expertise that could signiﬁcantly improve the new product. They contacted them and
Shadycorp offered to sell their expertise to Magnatree for $5 million. Magnatree needs to
make an immediate decision on Shadycorp's offer or it will be too late to investigate the use
of the expertise in design of the new product. Without the expertise Magnatree has a 20%
chance of making the new product a huge success. With Shadycorp’s expertise there will be
a 40% chance of the new product being a huge success.
If the new product is a huge success, the net present value of its future proﬁts is expected to
be $50 million. If it is merely a success, the net present value of its future proﬁts is expected
to be $20 million. 1] Construct a decision tree and solve it. 2] Should Magnatree accept Shadycorp’s offer? 3) What is the expected net present value of its future proﬁts from the new product? 5; «653033300 ...
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This note was uploaded on 10/17/2011 for the course MNGT 368 taught by Professor Curthurds during the Spring '08 term at Nicholls State.
- Spring '08