Question
Use a decision tree to model Trip Logistics option to not sign a lease and thus get all warehousing space from the spot market as
Use a decision tree to model Trip Logistics option to not sign a lease and thus get all warehousing space from the spot market as needed with the following modifications: The planning horizon is 2 years
1000 sq. ft. of warehouse space needed for 1000 units of demand
Current demand = 100,000 units per year
Binomial uncertainty: Demand (D) can go up by 15% with probability p = 0.5 or down by 10% with 1 p = 0.5
Lease price = $1.00 per sq. ft. per year Spot market price (S) = $1.20 per sq. ft. per year
Spot prices can go up by 10% with p = 0.5 or down by 7% with 1 p = 0.5
Revenue = $1.22 per unit of demand
k = 0.05 (rate of return)
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