A company has just won a new project which involves producing 500,000 components. The company already has the machine to produce the components but it currently operates with an efficiency of 50%, which means that 50% of the parts produced need to be discarded due to bad quality. Therefore, the company wants to evaluate three alternatives: the purchase of a brand new machine (trading in the existing one), keeping the machine as is and completing the project with the current conditions of the machine, and refurbishing the machine to restore its efficiency to up to an 80%. Each component costs $0.5 to be produced regardless of the alternative.

- The new machine would cost $120,000 in total considering the sale of the existing one. The supplier of the machine states that it has an efficiency of 98%. So, the company assumes a 1% probability that the machine would reduce its efficiency to 96%.

- The existing machine is considered to operate at a 50% efficiency but with a 50% chance of reducing it to 40%.

- The Refurbishment of the machine will cost a total of $30,000 will take the efficiency to 80%. This will have a probability of 20% of reducing its efficiency to 60%.

What is the alternative that the company would choose? What is the Expected Monetary Value (cost) for the chosen alternative?

Note:

• The efficiency percentage implies that the company would need to produce more than 500,000 units to fulfil the order.
• Numbers are rounded to integers.

	a.	Refurbish old machine, EMV = $363,333
	b.	Refurbish old machine, EMV = $90,000
	c.	New Machine, EMV = $115,000
	d.	Keep Old machine as is, EMV = $50,000
	e.	New Machine, EMV = $375,155
	f.	Keep Old machine as is, EMV = $562,500