You are a manager of the clinical laboratory in a medical center. The lab is goi

Question

You are a manager of the clinical laboratory in a medical center. The lab is going through an expansion stage and top management has asked you to select and present the rationale the alternative that will provide the greatest expected monetary value and the lowest risk cost. One alternative is to remodel the current lab with more modern fittings and the other is to acquire and construct a lab addition in the space next door. Remodeling cost to the lab, if equipment is available locally is $90,000. There is a 60/40 chance that the equipment will not be available locally and will need to be brought in from another state which will cost $150,000.
To construct a lab next door will take a lot of work. The price of the space next door is $500,000. A local builder has provided a best cost of $110,000 and a worst cas if $200,000. The best case is 65% likely. Draw a decision tree and calculate the Expected monetary value. Which alternative will you recommend? You are a manager of the clinical laboratory in a medical center. The lab is going through an expansion stage and top management has asked you to select and present the rationale the alternative that will provide the greatest expected monetary value and the lowest risk cost. One alternative is to remodel the current lab with more modern fittings and the other is to acquire and construct a lab addition in the space next door. Remodeling cost to the lab, if equipment is available locally is $90,000. There is a 60/40 chance that the equipment will not be available locally and will need to be brought in from another state which will cost $150,000.
To construct a lab next door will take a lot of work. The price of the space next door is $500,000. A local builder has provided a best cost of $110,000 and a worst cas if $200,000. The best case is 65% likely. Draw a decision tree and calculate the Expected monetary value. Which alternative will you recommend?
To construct a lab next door will take a lot of work. The price of the space next door is $500,000. A local builder has provided a best cost of $110,000 and a worst cas if $200,000. The best case is 65% likely. Draw a decision tree and calculate the Expected monetary value. Which alternative will you recommend?

Explanation / Answer

expected monetory value of option 1 is $ 114000 and option 2 is $ 641500

as the expected monetory value is less for option 1, remodeling of lab therefore that option is recommended

payoffs locally available equipments 90000 0.6 remodel the current lab 114000 114000 equipments from other states 150000 0.4 clinical lab best cost 110000 0.65 acquire and construct the lab space cost 500000 641500 641500 worst cost 200000 0.35

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