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2. You are a logistics manager for Alphasmart, a smartphone manufacturer. You are trying to select a single supplier for the raw materials for
2. You are a logistics manager for Alphasmart, a smartphone manufacturer. You are trying to select a single supplier for the raw materials for your product. Two companies can provide the necessary materials - Hunts and Madis. Hunts has sufficient capacity to meet your demand and charges $3.00 per unit. Madis is a small supplier with a limited capacity, can supply up to 60,000 units per year, and charges $2.50 per unit of the raw material. If you do not get raw material from your supplier, you buy from the spot market at $5 per unit. Alphasmart sold 40,000 smartphones last year and estimates demand for smartphones to go up by 30% with a probability of 60 percent and to remain the same as last year with a probability of 40% for the first year and the second year as well. Alphasmart uses a discount rate of 8 percent. Assume all costs are incurred at the end of the year and only one supplier I needs to be selected. Which supplier will you select based on the present value of your annual cost? (60) Note: you need to discount the first year as well the second-year payoffs.
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