Question

Ling Li of Li​ Windows, Inc. is considering making a change in the material the firm uses for panes in its residential window line. The new material has a slight mirror attribute that assists in reflecting​ ultra-violet light and restricts the transmission of heat. The new material will raise the cost of a standard window by​$3.76. The current window is in the mature stage of the life cycle and with no​ modifications, Li has estimated that sales of the window line will be​ 240,000 units per year for the next 5 years with a probability of​ 0.3, and has a 0.70 probability of selling​180,000 units per year over the five years. The standard profit margin of a window unit is​ $45. With the new glass​ material, the selling price per unit can be increased by​ $5 (but with the added​cost, the net increase in profit margin ​=(($45plus​$5)minus​$3.76)​= $46.24). ​ However, Li estimates that the demand for the newly designed window will be​ 210,000 units with a probability of​ 0.6, and that there will be a 0.4 probability of sales of​ 150,000 units. Choose the correct decision tree that corresponds with the decision made by Ling Li.
A. No change New material High demand High demand Low demand Low demand
B. No change New material High demand Low demand
C. No change New material High demand Low demand
D. No change New material High demand High demand Low demand Low demand

Answer 1

Answer:

D. No change New Material High Demand High demand Low demand low demand

Explanation:

The expected price change in the modification of window is $3.76. The new window will increase the sales price by $5 but selling units will decline. The estimated demand for the new window is uncertain as the current life cycle of the window is mature stage.