EMV(1)=$____ EMV(2)=$____ EMV(3)=$____ Help please! Phillip Witt, president of W
ID: 348905 • Letter: E
Question
EMV(1)=$____
EMV(2)=$____
EMV(3)=$____
Help please!
Phillip Witt, president of Witt Input Devices, wishes to create a portfolio of local suppliers for his new line of keyboards. As the suppliers all reside in a location prone to hurricanes, tornadoes, flooding, and earthquakes, Phillip believes that the probability in any year of a "super-event" that might shut down all suppliers at the same time at least 2 weeks is 2%. Such a total shutdown would cost the company approximately $520,000. He estimates the "unique-event" risk for any of the suppliers to be 7%. Assuming that the marginal cost of managing an additional supplier is $14,800 per year, how many suppliers should Witt Input Devices use? Assume that up to three nearly identical local suppliers are available Find the EMV for alternatives using 1, 2, or 3 suppliers EMV(1) = $11 (Enter your response rounded to the nearest whole number)Explanation / Answer
EMV1 = cost of shutdown*super event risk + cost of shutdown*unique event risk + cost of managing supplier = 520000*.02 + 520000*0.07+14800 = 10400 + 36400 + 14800= 61600
EMV2 = cost of shutdown*super event risk + cost of shutdown*unique event risk of each supplier^2+ cost of managing 2 suppliers = 520000*.02 + 520000*0.07^2+16000*2 = 10400+2548+ 29600 = $ 42548
EMV3 = cost of shutdown*super event risk + cost of managing 3 suppliers = 520000*.02 +14800*3 = 54800
Based on the EMV value, the best choice is to use Two suppliers
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