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

question 52

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).
$$\begin{array}{l}\text { Profit from Capacity Investment (in Dollars) }\\\begin{array} { | l | c | c | } \hline \text { Equipment Option } & \begin{array} { c } \text { Market picks up } \\\text { "soon" } \\p = 0.30\end{array} & \begin{array} { c } \text { Market picks up } \\\text { "later" } \\p = 0.70\end{array} \\\hline \text { Manual Machine } & - 120000 & 210000 \\\hline \text { NC Machine } & 140000 & 160000 \\\hline \text { CNC Machine } & 200000 & - 200000 \\\hline\end{array}\end{array}$$
a. Calculate the expected monetary value of each decision alternative.
b. Which equipment option should Steve take?

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Definitions:

Networking Behaviours

Actions taken by individuals to establish and maintain relationships with others for the purpose of professional or personal advancement.

Political Skill

The ability to effectively understand others and use such knowledge to influence them to act in ways that enhance one's personal or organizational objectives.

Job Satisfaction

The degree to which employees feel fulfilled and content with their job and work environment.

High Machs

Individuals with a "high Machiavellian" personality type, characterized by manipulation and exploitation of others to achieve personal goals.