A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high,with the estimated probabilities being 0.40, 0.35, and 0.25, respectively.A small facility is expected to earn an after-tax net present value of just $11,000 if demand is low. If demand isaverage, the small facility is expected to earn $15,000; it can be increased to medium size to earn a net present valueof $50,000. If demand is high, the small facility is expected to earn $25,000 and can be expanded to medium size toearn $70,000 or to large size to earn $100,000.A medium-sized facility is expected to lose an estimated $75,000 if demand is low and earn $90,000 if demand isaverage. If demand is high, the medium-sized facility is expected to earn a net present value of $100,000; it can beexpanded to a large size for a net payoff of $115,000.If a large facility is built and demand is high, earnings are expected to be $180,000. If demand is average for the largefacility, the present value is expected to be $80,000; if demand is low, the facility is expected to lose $80,000.Which alternative is best according to each of the following decision criterion? (Enter your responses as wholenumbers.)Criteriona. Maximinb. Maximaxc. Minimax regretDecisionSmall facilityLarge facilityMedium facilityValue of Return$ thousand$ thousand$ thousand

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A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.40, 0.35, and 0.25, respectively.

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter5: Probability: An Introduction To Modeling Uncertainty

Section: Chapter Questions

Problem 18P: The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin...

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. A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.25, 0.40, and 0.35, respectively. A small facility is expected to earn an after-tax net present value of just $18,000 if demand is low. If demand is average, the small facility is expected to earn $75,000; it can be increased to medium size to earn a net present value of $60,000. If demand is high, the small facility is expected to earn $75,000 and can be expanded to medium size to earn $60,000 or to large size to earn $125,000. A medium-sized facility is expected to lose an estimated $25,000 if demand is low and earn $140,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $150,000; it can be expanded to a large size for a net payoff of $145,000. If a large facility is built and demand is high, earnings are expected to be $220,000. If demand is average for the…
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