A manager must decide how many machines of a certain type to buy. The machines will be used to manufacture a new gear for which there is increased

demand. The manager has narrowed the decision to two alternatives: buy one machine or buy two. If only one machine is purchased and demand is more

than it can handle, a second machine can be purchased at a later time. However, the cost per machine would be lower if the two machines were

purchased at the same time. The estimated probability of low demand is $\mathrm{.}30,$ and the estimated probability of high demand is $.70.$ The net present value

associated with the purchase of two machines initially is $$79,200$ if demand is low and $$130,600$ if demand is high. The net present value for one

machine and low demand is $$99,000.$ If demand is high, there are three options. One option is to do nothing, which would have a net present value of

$$124,680.$ A second option is to subcontract; that would have a net present value of $$115,650.$ The third option is to purchase a second machine. This

option would have a net present value of $$123,540.$

a$.$ What is the EMV $($expected monetary value$)$ for alternative buy one machine? The EMV is $ Blank $1.$

b$.$ What is the EMV $($expected monetary value$)$ for alternative buy two machines? The EMV is $ Blank $2.$

c$.$ How many machines should the manager purchase initially? The manager should purchase Blank $3$ machine$($s$)$ initially.

Blank

Blank:

Blank $3$