7. The DoorCo Corporation is a leading manufacturer of garage doors. All doors are manufactured in their plant in Carmel, Indiana, and shipped to distribution centers or major customers. DoorCo recently acquired another manufacturer of garage doors, Wisconsin Door, and is considering moving its wood door operations to the Wisconsin plant. A key consideration in this decision is the transportation and production costs at the two plants and the new construction and relocation costs. Complicating matters is the fact that marketing is predicting a decline in the demand for wood doors. The company developed three scenarios: 1. Demand falls slightly, with no noticeable effect on production. 2. Demand and production decline 20%. 3. Demand and production decline 45%. The table below shows the total costs under each decision and scenario. Sli_ itDecline 20% Decline 40% Decline Stay in Carmel $980,000 $830,000 $535,000 $990,000 $835,000 $630,000 a. What decision should DoorCo make using the average payoff, aggressive, conservative, and opportunity loss decision strategies discussed in this chapter? b. Suppose the probabilities of the three scenarios are estimated to be 0.15, 0.40, and 0.45, respectively. Construct a decision tree and compute the rollback values to find the best expected value decision. Answer: DoorCo Slight 20% 40% Average Aggressive Conservative Opportunity Decline Decline Decline Payoff Loss Stayin $9,130,000 $830,000 $6,135,000 $8,15,000 $635,000 $9,230,000 $5,000 Carmel Move to $930,000 $8,35,000 $6,130,000 $8,18,333 $6,30,000 $9,90,000 $10,000 Wisconsin 15% 40% 45% Best Stay in Move to Stay in Stay in Decision Carmel Wisconsin Carmel Carmel Opportunity Loss Slight Decline 20% Decline 40% Decline Stay in Carmel 5- _ 555000 510.000 $5,000 _ 11-09