Steve Gentry, the Operations Manager of Baja Fabricators, Wants to Purchase

question 3

Essay

Steve Gentry, the operations manager of Baja Fabricators, wants to purchase a new profiling machine (it cuts compound angles on the ends of large structural pipes used in the fabrication yard). However, because the price of crude oil is depressed, the market for such equipment is down. Steve believes that the market will improve in the near future and that the company should expand its capacity. The table below displays the three equipment options he is currently considering, and the profit he expects each one to yield over a two-year period. The consensus forecast at Baja is that there is about a 30% probability that the market will pick up "soon" (within 3 to 6 months) and a 70% probability that the improvement will come "later" (in 9 to 12 months, perhaps longer).
a. Calculate the expected monetary value of each decision alternative.
b. Which equipment option should Steve take?

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Definitions:

Localization

The concept that specific parts of the brain are associated with specific functions or behaviors.

Hertz

The unit of frequency in the International System of Units (SI), defined as one cycle per second.

Frequency

The rate at which something occurs over a particular period or in a given sample, often used in the context of waves or sound.

Kinesthetic

Relating to kinesthesia, the awareness of the position and movement of the parts of the body by means of sensory organs in the muscles and joints.