Sunshine Manufacturing Company has developed a unique new product and must now decide between two facility plans.The first alternative is to build a large new facility immediately.The second alternative is to build a small plant initially and to consider expanding it to a larger facility three years later if the market has proven favorable.
Marketing has provided the following probability estimates for a 10-year plan:
If the small plant is expanded,the probability of demands over the remaining seven years is 7/8 for favorable and 1/8 for unfavorable.The accounting department has provided the payoff for each outcome. Use these estimates to analyze Sunshine's facility decision.
a.Perform a complete decision tree analysis.
b.Recommend a strategy to Sunshine.
c.Determine what payoffs will result from your recommendation.

Question

Sunshine Manufacturing Company has developed a unique new product and must now decide between two facility plans.The first alternative is to build a large new facility immediately.The second alternative is to build a small plant initially and to consider expanding it to a larger facility three years later if the market has proven favorable.​
Marketing has provided the following probability estimates for a 10-year plan:
​  If the small plant is expanded,the probability of demands over the remaining seven years is 7/8 for favorable and 1/8 for unfavorable.The accounting department has provided the payoff for each outcome.​  Use these estimates to analyze Sunshine's facility decision.​ 
a.Perform a complete decision tree analysis.
b.Recommend a strategy to Sunshine.
c.Determine what payoffs will result from your recommendation.
​

Quizplus · Accepted Answer

The Answer of Sunshine Manufacturing Company has developed a unique new product and must now decide between two facility plans.The first alternative is to build a large new facility immediately.The second alternative is to build a small plant initially and to consider expanding it to a larger facility three years later if the market has proven favorable.​
Marketing has provided the following probability estimates for a 10-year plan:
​  If the small plant is expanded,the probability of demands over the remaining seven years is 7/8 for favorable and 1/8 for unfavorable.The accounting department has provided the payoff for each outcome.​  Use these estimates to analyze Sunshine's facility decision.​ 
a.Perform a complete decision tree analysis.
b.Recommend a strategy to Sunshine.
c.Determine what payoffs will result from your recommendation.
​

Sunshine Manufacturing Company Has Developed a Unique New Product and Must