# Expansion Strategy and Establishing a Re-Order Point

*label*Business Finance

*timer*Asked: Jun 2nd, 2018

*account_balance_wallet*$20

**Question description**

**Purpose of Assignment**** **

This assignment has two cases. The first case is on expansion strategy. Managers constantly have to make decisions under uncertainty. This assignment gives students an opportunity to use the mean and standard deviation of probability distributions to make a decision on expansion strategy. The second case is on determining at which point a manager should re-order a printer so he or she doesn't run out-of-stock. The second case uses normal distribution. The first case demonstrates application of statistics in finance and the second case demonstrates application of statistics in operations management.** **

**Assignment Steps**** **

**Resources: **Microsoft Excel^{®}, Bell Computer Company Forecasts data set, Case Study Scenarios (Please create a text box for each within Microsoft Excel to complete this objective)

**Develop** a summary in the text boxes based on the Bell Computer Company Forecasts data set and Case Study Scenarios.

**Include** answers to the following:

Case 1: Bell Computer Company

- Compute the expected value for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of maximizing the expected profit?
- Compute the variation for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of minimizing the risk or uncertainty?

Case 2: Kyle Bits and Bytes

- What should be the re-order point? How many HP laser printers should he have in stock when he re-orders from the manufacturer?

## Tutor Answer

Attached.

Low

Demand Medium

High

Expected Profit ($1000s)

Medium-Scale

Large-Scale

Expansion Profits

Expansion Profits

Annual

Annual

Profit

Profit

($1000s)

($1000s)

P(x)

P(x)

50

20%

0

20%

150

50%

100

50%

200

30%

300

30%

145

Case 1: Bell Computer Comp

The expected profit for the m

expansion, the expected valu

Since the expected value of p

large-scale project, it means t

probability of generating mor

The option for medium

expected profit.

140

Risk Analysis for Medium-Scale Expansion

Annual Profit

(x)

Probability

P(x)

(x - µ)2 (x - µ)2 * P(x)

Demand $1000s

(x - µ)

Low

50

20%

-95

9025

1805

Medium

150

50%

5

25

12.5

High

200

30%

55

3025

907.5

2

σ =

2725

σ=

52.20

Risk Analysis for Large-Scale Expansion

Annual Profit

(x)

Probability

P(x)

(x - µ)2 (x - µ)2 * P(x)

Demand $1000s

(x - µ)

Low

0

20%

-140

19600

3920

Medium

100

50%

-40

1600

800

High

300

30%

160

25600

7680

2

σ =

12400

σ=

111.36

From the computation of risk

variance of 2725 and ...

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