d) Do a sensitivity analysis with respect to the probability of success of the model. In which point does the optimal decision change? Are we close to that point? e) Do a sensitivity analysis with respect to the unit costs of production in Turkey. In which point does the optimal decision change? Are we close to that point?

1) A car producer must decide today if a new model is launched. The model will be sold during five years. If the decision is to launch, they also have to decide where they will locate the p 100,000 units/year that the company is estimating it could sell. One option is to increase the scale of the plant they already have in Germany. The other option would be to increase the scale of the plant in Turkey. For technical reasons, it is less costly to increase the scale in the plant in Germany, but unit production costs are lower in the plant in Turkey. If after launching the new model it is not as successful as forecasted, they could cancel the production (and reduce the plant's staff at the end of the first year. Differences in labor regulation make it cheaper to cancel production in Turkey. You can find below all the necessary information. Germany 60 million 9,000 620 million Turkey 100 million 8,800 10 million - Costs of increasing the scale Unit costs of production Costs of reduction of plant's staff Estimated percentage of new models which are successful: 60% Unit price: 9500 if the model is successful and 8000 if not Estimated cost of capital: 10%