Y5

As a small business manager, you are considering introducing a new product. The production requires a new machine. You can buy it for $190,000, but the price could be between $180,000 and $200,000. Because of the budget limitation, you can only pay 60% of the machine's worth with your saving. You will borrow the other 40% with an interest rate of around 9% per year (subject to change between 8.5% and 10%). The demand for this product is predicted to be 15,000 per year but could be between 14800 and 15500. The unit price could be between $2 and $3, and now you believe that $2.5 is a reasonable price. The raw material cost is estimated to be $0.9 but could be between $0.5 and $1.2. The operation cost of the equipment is around $0.2 for one product but could be between $0.1 and $0.25. The maintenance cost for this equipment is estimated to be $2000 per year but could be between $1500 and $2300. Suppose you could always invest your cash in the money market that gives a return of 8% per year for sure. Please do the following analysis: 1.- Construct the Influence Diagram forthis decision problem and identify the inputs and mathematic models that relate these inputs (decision variables) to the decision problem. 2.- Construct the Tornado Diagram 3.- Based on Tornado Diagram, identify the two most sensitive variables and do a two- way sensitivity analysis based on these two variables. Illustrate your result in a two-way sensitivity graph 4.- Can you decide whether to invest after these analyses? If not, what to do next