Paper , Order, or Assignment Requirements
- The Cardinal Company is interested in the development and manufacturing of
handheld VHF Radios. In order to obtain the engineering and production capacity to
enter this market the company will either have to build a new facility or expand and
upgrade its current facilities. The development team has narrowed the alternatives to two
approaches to obtain the required capacity: (1) a new facility, at a cost of $15 Million, or
(2) expansion/upgrade of current facilities, at a cost of $8 Million. Both approaches
would require the same amount of time for implementation.
A rigorous study conducted by a team of economic and financial experts indicates that
over the required payback period, demand for the product will either be high or moderate.
Since high demand is considered to be somewhat less likely than moderate demand, the
probability of high demand has been estimated at 0.35. If demand is high, a new facility
would result in an additional $25 Million in revenue, but expansion/upgrade only an
additional $15 Million, due to lower maximum production capability. On the other hand
if demand is moderate, the comparable figures would be $15 Million for a new facility
and $10.0 Million for expansion/upgrade. (All costs and profit values are figured on a
present value, using an appropriate rate of return)
If Cardinal wishes to maximize its expected monetary value, should it obtain a new
facility or expand? Provide a decision tree or some other means of representing your
calculation. What other factors might play into Cardinal’s decision whether to modernize
or expand? ()
- Discuss the principles of Risk Response Planning and Monitoring and Controlling Risks. Include a discussion of the four different methods of dealing with a given risk.
- Briefly Discuss 10 common Operational Risk factors?