Suppose that the manager of a company has estimated the probability of a super-event sometime during the next three years that w
ill disrupt all suppliers as 2%. In addition, the firm currently uses four suppliers for its main component, and the manager estimates the probability of a unique-event that would disrupt one of them sometime during the next three years to be 20%. Supplier management costs during this period are $50,000 per supplier. The financial cost incurred if all four suppliers are disrupted at the same time is estimated to be $10,000,000. What is the expected monetary value (i.e., cost) of the current supplier diversification arrangement? Show the results by drawing the decision tree in POM-QM.
1 answer:
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Answer:
A. 7.95%.
Explanation:
Calculate the expected rate of return for the investment as follows:
Calculate the standard deviation of the investment as follows:
=
Answer:
It will take 10 years to have $20,000 on investment of $10,000.
Explanation:
Annual Rate of return = r = 7%
Compounded Value / Future Value = FV = $20,000
Investment Value / Present Value = PV = $10,000
Use Future value formula to solve this question:
Future Value = Present Value x ( 1 + Number of Year )^Number of year
FV = PV x
$20,000 = $10,000 x
=
$2 =
Log 2 = n log 1.07
0.30 = n x 0.03
n =
n = 10.00
n = 10 year (rounded off to nearest year )
It will take 10 years to have $20,000 on investment of $10,000.