Imagine a U.S. manufacturing company decided to consider producing a particular model of one of its products just for sa
Posted: Sun Jun 05, 2022 4:52 pm
Imagine a U.S. manufacturing company decided to consider
producing a particular model of one of its products just for sale
in Germany. Because of the German requirements, the product must be
made specifically for German consumption and cannot be sold in the
United States. Company officials believe the market for the product
is highly price sensitive. Because the product will be manufactured
in the United States and exported to Germany, the biggest variable
factor in being price-competitive is the exchange rate between the
two countries.
If the dollar is strong, German consumers will have to pay more
for the product in Euros. If the dollar becomes weaker against the
Euros, Germans can buy more U.S. products for their money. The
company officials are faced with decision alternatives of whether
to produce the product. The states of the exchange rates are:
•Dollar weaker.
•Dollar stays the same.
•Dollar stronger.
The probabilities of these states occurring are .35, .25, and
.40, respectively. Some negative payoffs will result from not
producing the product because of sunk development and market
research costs and because of lost market opportunity.
If the product is not produced, the payoffs are −$700 when the
dollar gets weaker, −$200 when the dollar remains about the same,
and $150 when the dollar gets stronger. If the product is produced,
the payoffs are $1,800 when the dollar gets weaker, $400 when the
exchange rates stay about the same, and −$1,600 when the dollar
gets stronger.
Directions:
Consider the information in the scenario above to do complete
the following tasks on their corresponding spreadsheet tabs below.
Make sure to use the nomenclature and formatting conventions found
in your textbook for all diagrams.
•Draw an influence diagram that correctly represents the
question scenario.
•Draw a Schematic Tree that illustrates the
chronological order of decisions and uncertainties. Make sure to
connect all branches.
•Draw the Decision Tree and
add probabilities, outcomes, and values to complete it.
•Rollback. Use the rollback procedure to
compute expected monetary value of the tree. Recommend which
decision the company should make based on this information and the
rationale for that decision.
producing a particular model of one of its products just for sale
in Germany. Because of the German requirements, the product must be
made specifically for German consumption and cannot be sold in the
United States. Company officials believe the market for the product
is highly price sensitive. Because the product will be manufactured
in the United States and exported to Germany, the biggest variable
factor in being price-competitive is the exchange rate between the
two countries.
If the dollar is strong, German consumers will have to pay more
for the product in Euros. If the dollar becomes weaker against the
Euros, Germans can buy more U.S. products for their money. The
company officials are faced with decision alternatives of whether
to produce the product. The states of the exchange rates are:
•Dollar weaker.
•Dollar stays the same.
•Dollar stronger.
The probabilities of these states occurring are .35, .25, and
.40, respectively. Some negative payoffs will result from not
producing the product because of sunk development and market
research costs and because of lost market opportunity.
If the product is not produced, the payoffs are −$700 when the
dollar gets weaker, −$200 when the dollar remains about the same,
and $150 when the dollar gets stronger. If the product is produced,
the payoffs are $1,800 when the dollar gets weaker, $400 when the
exchange rates stay about the same, and −$1,600 when the dollar
gets stronger.
Directions:
Consider the information in the scenario above to do complete
the following tasks on their corresponding spreadsheet tabs below.
Make sure to use the nomenclature and formatting conventions found
in your textbook for all diagrams.
•Draw an influence diagram that correctly represents the
question scenario.
•Draw a Schematic Tree that illustrates the
chronological order of decisions and uncertainties. Make sure to
connect all branches.
•Draw the Decision Tree and
add probabilities, outcomes, and values to complete it.
•Rollback. Use the rollback procedure to
compute expected monetary value of the tree. Recommend which
decision the company should make based on this information and the
rationale for that decision.