Elly Machine Shop achieved a great success with the choice you made in the previous problem and they set up a fund to do more research. A product named B007 was successfully developed by one of its research laboratories. Elly Machine Shop has to decide whether to proceed to test market B007 or whether to drop it completely. It is estimated that test marketing will cost $94000. Past experience indicates that only 25% of products are successful in test market. If B007 is successful at the test market stage, then Elly Machine Shop faces a further decision relating to the size of plant to set up to produce B007. A small plant will cost $152000 to build and produce 3000 units a year whilst a large plant will cost $222000 to build but produce 6000 units a year. The marketing department have estimated that there is a 45% chance that the competition will respond with a similar product and that the price per unit sold (in \$) will be as follows (assuming all production sold): Assuming that the life of the market for B007 is estimated to be 7 years and that the yearly plant running costs are $16000 and $45000 for small plant and large plant respectively. Draw the decision tree. Drop files here or click to upload. Only the files listed below will be accepted-others will be ignored. The combined size limit of all uploaded files is 5MB. Files prob3_part1.pdf uploaded Part 2 If B007 is successful in test market, what is the profit to build small plant, large plant or not building the plant? Which option should Elly Machine Shop take if B007 is successful in test market? Note: input 1 for "Small plant", input 2 for "Large plant", input 3 for "Not building the plant" Based on your decision in part 2, what is the profit if Elly Machine Shop chooses to test market B007 (if it is a loss, input the negative number)? Should Elly Machine Shop test market B007? Note: input 1 for "Proceed test market", input 0 for "Dropping the product" Elly Machine Shop achieved a great success with the choice you made in the previous problem and they set up a fund to do more research. A product named B007 was successfully developed by one of its research laboratories. Elly Machine Shop has to decide whether to proceed to test market B007 or whether to drop it completely. It is estimated that test marketing will cost $94000. Past experience indicates that only 25% of products are successful in test market. If B007 is successful at the test market stage, then Elly Machine Shop faces a further decision relating to the size of plant to set up to produce B007. A small plant will cost $152000 to build and produce 3000 units a year whilst a large plant will cost $222000 to build but produce 6000 units a year. The marketing department have estimated that there is a 45% chance that the competition will respond with a similar product and that the price per unit sold (in \$) will be as follows (assuming all production sold): Assuming that the life of the market for B007 is estimated to be 7 years and that the yearly plant running costs are $16000 and $45000 for small plant and large plant respectively. Draw the decision tree. Drop files here or click to upload. Only the files listed below will be accepted-others will be ignored. The combined size limit of all uploaded files is 5MB. Files prob3_part1.pdf uploaded Part 2 If B007 is successful in test market, what is the profit to build small plant, large plant or not building the plant? Which option should Elly Machine Shop take if B007 is successful in test market? Note: input 1 for "Small plant", input 2 for "Large plant", input 3 for "Not building the plant" Based on your decision in part 2, what is the profit if Elly Machine Shop chooses to test market B007 (if it is a loss, input the negative number)? Should Elly Machine Shop test market B007? Note: input 1 for "Proceed test market", input 0 for "Dropping the product
