Expected Value = ??

Expected Value = ??

1. Accept Offer

   • Purchase cases
     • $500 per case
     • EV: $198,000 - $50,000 = $148,000
   • Buy injection molder
     • Fixed Cost $20,000
     • Molder works
       • $60 per case
       • $178,000 - $6000 = $172,000
     • Molder does not work
       • Purchase cases
         • $500 per case
         • $178,000 - $50,000 = $128,000
     • Net profit: $198,000 - $20,000 = $178,000
     • 0.6(1720) + 0.4(1280)
     • EV = 1544
   • Fixed Cost of $100,000
   • 100 units at $5000 per piece
   • Cost of $2000 per unit
   • $20 per unit for assembly
   • Net profit: $500,000 - $100,000 - $200,000 - $2000 = $198,000

2. Decline Offer

   • EV: $0

3. Arthordax Company