Assignment Task:
Flexicomp is a computer manufacturer that currently makes its computers in California. The manufacturing cost at the California plant is $300 per computer. Flexicomp sells the computers for $1500. Its current yearly demand is 5000 computers. Flexicomp estimates that each year, demand has a 50 percent chance of increasing 10 percent from the year before and a 50 percent chance of remaining the same as the year before. The California facility has a capacity of 5000 units. Flexicomp is considering two options. The first option is to build a new facility in New York. The new facility will have a capacity of 2000 and Flexicomp will incur a one time cost of $1,000,000. The manufacturing cost at the new facility will be $250 per unit because of updated facilities. The second option is to buy pre-assembled computers from Compco when demand goes over 5000. The current cost of preassembled computers from Compco is $700 per unit. Flexicomp expects Compco to increase its prices each year. Flexicomp estimates that each year there is a 50% chance that the price will increase by 10% or there is a 50% chance that the price will increase by 5%. Use a decision tree to determine which option Flexicomp should use. Consider the expected profits from the current year, and the next two years in your decision making process. Assume a discount factor of 10% over the next two years.
Answer must be shown in a Excel spreadsheet.