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MICO Engineers MICO Manufacturing Company currently manufacture specific items used in construction.
MICO EngineersMICO Manufacturing Company currently manufacture specific items used in construction. Currently there existing plant is Diesel Base and 90% of time plant is in operation while 10% of time they have to shut down for maintenance.. When plant is in-operation 75% chances that they can earn revenue as high as $160m. While 20% chances that they can earn revenue as low as $98m. In Non-operational period of time (when plant is shut down for maintenance) they bear loss of $29m.In recent meeting Jeff, proposed following alternativesImprove the existing plant, develop Natural Gas Model, develop Electrical Model.Improve existing plantIt requires $15m to improve/upgrade and they can earn revenue as high as $182m with 75% chances, and as low as $102m with 25% chances.Natural Gas Model (NG)MICO Engineers will work on New NG model. It requires $20m and chances for success are only 72%. If NG Model developed successfully, MICO is expecting revenue of $198m with 47% chances, revenue of $172m with 30% chances and 23% chances of earning revenue as low as $155m by using its own distribution channel.In case of failure they can either stop further progress or give contract to ABC company to develop NG model for them, who offered them to design NG model as per there requirements. ABC will charge $30m only in case of success. Chances for success are 97%. If ABC fails MICO has to abandon the development of NG model.In case of success through ABC Company, MICO can use its own distribution channel or they may use ABC distribution channel. In case of the use of ABC distribution channel MICO can earn revenue as high as $188m with 82% chances and as low as $157m with 18% chances. Electrical Model (EM)They have design of three Electrical models EM-A, EM-B an EM-C.MICO Engineers will go first for EM-A it requires $18m and success rate is only 45%. In case of EM-A failure they can either stop the project at this stage or further proceed for EM-B which requires additional $8m and success rate is 50%. In case of EM-B failure they can either stop the project at this stage or further proceed for EM-C which requires additional $5m and failure rate is only 12%. In case of EM-C failure MICO has to abandon the development of EM model. (In case of success they will not work on other design/s)In case of success of EM-A: they estimated revenue of $180m with 75% chances and $162m with 25% chances.EM-B: they estimated revenue of $178m with 80% chances and $148m with 20% chances.EM-C: they estimated revenue of $190m with 78% chances, $170 with 12% chances and $142 with 10% chances.MICO’s CEO knows that you are taking Decision analysis course and he asked you to consider all the alternatives to draw Decision tree and show all EMV’s on tree (show the calculation of EMV’s)?
