• A manufacturer, faces a plant location decision in a global network with fluctuating exchange rates and demand uncertainty.

• The manufactures sell its products primarily Onshore. Demand in the Onshore market is currently 200,000 units per year and each unite sells for $140. While unit demand is expected to grow, there are some downside risks if the economy slides from one year to the next, demand may increase by 20 percent with probability 0.8 or decrease by 20 percent with probability 0.2.

• The manufacturer has to decide whether to build a plant Onshore or Offshore. In either case, the manufacture plans to build a plant with a rated capacity of 240,000 units. The fixed and variable costs of the plants are:

- Onshore Plant Fixed Cost = ($) 2 million/year

- Onshore Plant Variable Cost = ($) 80/unites

- Offshore Plant Fixed Cost = (yuan) 16 million/year

- Offshore Plant Variable Cost = (yuan) 650/unites

• Onshore plant has greater volume flexibility; production can Increase or decrease between 120,000 to 300,000 unites.

• Offshore plant has limited volume flexibility, can produce between 200,000 and 260,000 unites

• Offshore plant will have a variable cost for 200,000 unites and will lose sales if demand increases above 260,000 unites

• Yuan, currently 7 yuan/dollar, expected to rise 10%, probability of 0.7 or drop 10%, probability of 0.3

• Sourcing decision over the next 2 years

• Discount rate k = 0.1

Just evaluate the Onshore periods and select the correct answer (do not evaluate the Offshore periods).