Acadia Logistics anticipates that it will need more distribution center space to accommodate what it believes will be a significant increase in demand for its final-mile services. Acadia could either lease public warehouse space to cover all levels of demand or construct its own distribution center to meet a specified level of demand, and then use public warehousing to cover the rest. The yearly cost of building and operating its own facility, including the amortized cost of construction, is $13 per square foot. The yearly cost of leasing public warehouse space is $22.50 per square foot
Requirements (in sq. ft) 300,000 500,000 700,000 900,000
Probability 0.45 0.25 0.15 0.15
ANSWER:
a. The expected value of leasing public warehouse space as required by demand is $ ?
b. Calculate the expected value of building a 250,000-square-foot distribution center and leasing public warehouse space as required if demand exceeds the need for 250,000 square feet of space.
c. Calculate the expected value of building a 375,000-square-foot distribution center and leasing public warehouse space as required if demand exceeds the need for 375,000 square feet of space.
d. Calculate the expected value of building a 500,000-square-foot distribution center and leasing public warehouse space as required if demand exceeds the need for 500,000 square feet of space.
e. Calculate the expected value of building a 625,000-square-foot distribution.
f. Which of the above decisions provides the minimized expected value?