Assignment Problems:
1. Suppose the revenue for a firm is $2,500,000. Its cost of goods sold is $85,000, and its average inventory value for the year is $62,000. What is the firm's inventory turnover?
Please include the formula, at least one step of calculation, and the correct answer for full credit.
2. 1. Expando, Inc., is considering the possibility of building an additional factory that would produce a new addition to its product line. The company is currently considering two options. The first is a small facility that it could build at a cost of $6 million. If demand for new products is low, the company expects to receive $10 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects $12 million in discounted revenues using the small facility. The second option is to build a large factory at a cost of $9 million. Were demand to be low, the company would expect $10 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $14 million.
In either case, the probability of demand being high is 0.40, and the probability of it being low is 0.60. Not constructing a new factory would result in no additional revenue being generated because the current factories cannot produce these new products.
(a) Construct a decision tree to help Expando make the best decision. Please include the probabilities of different states and the payoffs in the decision tree full credit.You may want to refer to the decision tree on Slide 12 of the lecture on decision tree.
(b) Calculate the EMVs for each of the three alternatives. For each alternative, please include at least one step of calculation and the correct answer for full credit.