Existing facility or build second facility at location

Assignment Help Operation Management
Reference no: EM131417028

Pavlo Paxton is the owner of Paxton’s Landscaping located in Plano,Texas. Pavlo is trying to decide how to expand his business. Pavlo’s alternatives are to expand his existing facility or build a second facility at another location.

If he decides to expand his existing facility and the demand grows significantly, the result would be a net profit of $20,000. If demand growth is moderate, result would be a net profit of $10,000 and if demand slows, result would be a net loss of $12,000.

If he builds a new facility, the results would be a net profit of $30,000 if demand grows significantly, net profit of $14,000 if demand growth is moderate and a net loss of $20,000 if demand slows.

Without any further information, Pavlo estimates the probabilities of demand as: significant growth 0.20, moderate growth 0.50 and slow 0.30.

BEFORE making the facility decision, Pavlo could hire an independent market research firm to do a survey. The survey will indicate either positive or negative market conditions. Past experience indicates there is a 57% chance of a positive result, 43% chance of a negative result. Pavlo could then use the survey results to decide whether to expand or build new.

If the survey result is positive, the probability of significant growth is estimated to be 0.50, moderate growth 0.40 and slowing 0.10. If the survey result is negative, the probability of significant growth is estimated to be 0.15, moderate growth 0.40 and slowing 0.45.

The survey would cost $$1,000 so the payoffs must be adjusted to reflect that cost if the research firm is hired.

a. Draw and solve a decision tree for this problem

b. Write your recommendation.

Reference no: EM131417028

Describe some of the risks that an ocean shipment faces

Describe some of the risks that an ocean shipment faces. Describe some of the risks that an air shipment faces. What possible risk management strategies can an exporter/ impor

Discuss behavioral and situational interviews

The employment interview is very important, for the interviewee and the organization. Name and define the types of intervierws (unstructured and structured). Discuss behaviora

Output required to obtain the required production

A company runs one shift a day, 240 days a year to with a total input production of 925,800 units of a product annually. Each product requires one of each of four parts whose

Ways to encourage efficiency and operational cost

Organizations across the country are looking to improve on how health care is delivered. Keeping safety and quality in mind, administrations have looked to other industries

How alternative will affect various parts of organization

Your assistant comes to you with the feasibility evaluation of a decision alternative. What should he be describing to you? 1.How well the alternative will satisfy the condi

Suggest strategies which would improve firms web presence

Suggest strategies which would improve a firm’s Web presence, thus increasing overall business. Be specific as to the improvements you would suggest in improving the overall q

Tissue sample from her cervix for their research

Based on the consent form that Henrietta had to sign before her cancer treatments, do you think that TeLinde and Gey had the right to use Henrietta's tissue sample from her ce

Decision theory

The number of sandwiches sold at a shop near a University varies by day of the week.   The number of students attending class also varies by day of the week, as the following

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd