You are a product manager of a major computer manufacturer. Your company is hoping to...
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You are a product manager of a major computer manufacturer. Your company is hoping to launch a new product with an expected production of a million units over the life cycle for which you need a new component. If the component is made in house, the upfront costs of the make decision total $2 million, with a probability of 0.3 that the product will be satisfactory and a 0.7 probability that it will not. If the product is not a success, the firm will have to reassess the decision and the choice will be whether to spend another $1 million to redesign the component or to purchase. The probability of success the second time that the make decision is made is 0.9. If the make decision fails the second time, the firm must procure from outside for which the company decided to pay $0.50 for each purchased component plus $1 million in vendor development cost. What is the best decision for the company, make or buy? (You need to develop a decision tree)
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