3. A company manufactures stamped steel products. Increasingly, foreign producers are
undercutting the company’s price for these stampings, and the company is studying the
technology of its production capacity to determine if it should be upgraded to become
competitive with foreign firms. If production processes are automated, the net present value of
the returns (net present value means that the returns are expressed in terms of today’s dollars) to
the company is dependent on the market for the plant’s products:
Process
Automated Market Level
High
Med
Low Likelihood
0.1
0.5
0.4 Return
$4,000,000
2,600,000
1,500,000 If the company decides to do nothing now and review the situation in five years, two alternatives
will probably be present then- continue operating with the existing production processes or shut
the plant down and liquidate its assets. If the plant continues to be operated in its existing
condition after five years, the net present value of the returns is dependent on the market for the
plant’s products at that time:
Alternative
Do nothing now,
continue operating in
existing conditions Market Level
High
Med
Low Likelihood
0.3
0.4
0.3 Return
$3,000,000
2,500,000
2,000,000 If the company shuts the plant down and liquidates its assents after five years, the net present
value of the returns is estimated to be $2,000,000.
a. Use a decision tree analysis and recommend a course of action for the company.
b. What returns should the company actually expect from following your recommendations.

• 1496731054-- Decision Tree-Stamp Steel Products.docx

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Status NEW Posted 06 Jun 2017 06:06 AM My Price 8.00

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