Steve Gentry,the Operations Manager of Baja Fabricators,wants to Purchase a New

question 94

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:

Statute of Frauds

A legal principle that requires certain types of contracts to be in writing and signed by the parties involved.

UCC

Uniform Commercial Code; a set of comprehensive laws governing all commercial transactions in the United States.

Oral Contract

A type of agreement that is made verbally and not recorded in written form, which can be legally binding if it meets certain criteria.

Subject Matter

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