Barbour Electric Is Considering the Introduction of a New Product

question 25

Essay

Barbour Electric is considering the introduction of a new product.This product can be produced in one of several ways: (a)using the present assembly line at a cost of $25 per unit, (b)using the current assembly line after it has been overhauled (at a cost of $10,000)with a cost of $22 per unit; and (c)on an entirely new assembly line (costing $30,000)designed especially for the new product with a per unit cost of $20.Barbour is worried, however, about the impact of competition.If no competition occurs, they expect to sell 15,000 units the first year.With competition, the number of units sold is expected to drop to 9,000.At the moment, their best estimate is that there is a 40% chance of competition.They have decided to make their decision based on the first year sales.
(a)Develop the decision table (EMV).
(b)Develop a decision table (EOL).
(c)What should they do?

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Definitions:

Fixed Exchange Rate

A country's currency value set and maintained as equal to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.

Covariance

A measure of the degree to which two variables move in relation to each other.

Japanese Stock Market

The financial market in Japan where publically traded company stocks are bought and sold, notably includes the Tokyo Stock Exchange.

Fixed Exchange Rate

A country's currency value that is tied to another single currency or to another measure of value, like gold, and does not fluctuate in the market.