PT. Usaha Superior is a car seat manufacturer who has to decide whether to build a large-scale factory or a small-scale factory that is expected to have a safe prospect of 8 years. The amount of working capital needed to build a factory up to operation: a large-scale plant of $3,000,000 and a small-scale plant of $1,500,000. Estimated sales opportunity for 8 years is high demand 0.5; moderate demand 0.3; and low demand 0.2. The payoff analysis for each scenario is as follows:

a. A large-scale factory if demand is high the payoff is $1 million per year for the first 4 years and for the next 4 years the company can increase its payoff by sub-contracting. With sub-contract in the next 4 years and demand remains high the payoff is $1.5 million per year, if demand is moderate and low there will be idle capacity, so the payoff is only $500,000 per year for medium and low demand respectively. $400,000 per year for low demand. No sub-contract a second 4 year payoff of $1 million per year.

b. A large-scale factory with moderate demand, the payoff is $500,000 for the first 3 years, $600,000 for the second 3 years, and $750,000 for the last 2 years.

Save your time - order a paper!

Get your paper written from scratch within the tight deadline. Our service is a reliable solution to all your troubles. Place an order on any task and we will take care of it. You won’t have to worry about the quality and deadlines

Order Paper Now

c. A large-scale factory with low demand will incur a negative payoff of $250,000 per year.

d. A small-scale factory with a high demand payoff of only $200,000 per year, in this situation selling costs increase due to the inability to supply customers.

e. A small-scale factory with moderate demand, the payoff is $400,000 per year.

f. A small-scale factory with small demand is able to optimize its production capacity, so that it can achieve a payoff of $600,000 for the first 4 years and $750,000 for the next 4 years. Draw a decision tree to help the management of PT. Effort Superior takes the decision. Which decision should be made?

"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"