final exam

Prob7

7. (16pts)

A company must decide wheter to construct a medium-size technical facility now, or delay

the decision for 12 months to conduct a planning study on whether to build the medium-size facility

or a larger facility. If they build now and experience initial high demand, the company has the

opportunity to expand. They estimate the probability of high demand this year is 70%. Next year,

the probability of high demand is estimated to be 80%. Expected payoff for each decision alternative

is given in the decision tree below, along with the probability of a successful timely expansion.

Determine the expected monetary value of the decision to expand or not expand a medium facility

(decision alternative 3).

$620,000

Successful

0.9

Expand

Not Successful

High Demand

0.1

-$250,000

0.7

Don't Expand

$500,000

Medium

Low Demand

Facility

0.3

$100,000

High Demand

0.8

$950,000

Planning

Large Facility

Study

Low Demand

0.2

-$700,000

High Demand

0.8

$700,000

Medium Facility

Low Demand

0.2

$100,000

1

A

B

3

2

D

C

Initial demand this year

Initial demand next year

Prob8

8. (15pts)	Given the following time series, sales trend, and seasonal index, forecast sales for 2018 Q1.
		Qtr	Sales$	Trend			Qtr	Seas Index
		2014 Q4	90,014	84390.5			Q1	76.24
		2015 Q1	65,431	84010.8			Q2	92.5
		Q2	79,242	83631.1			Q3	126.25
		Q3	109,863	83251.4			Q4	105.03
		Q4	91,020	82871.7
		2016 Q1	63,885	82492.0
		Q2	77,156	82112.3
		Q3	104,816	81732.6
		Q4	82,451	81352.8
		2017 Q1	52,037	80973.1
		Q2	72,791	80593.4
		Q3	98,923	80213.7
		Q4		79834.8
		2018 Q1		79455.1