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Business, 04.09.2020 02:01 kayleenfifep3hgi4

Moon Micro is a small manufacturer of servers that currently builds its entire product in Santa Clara, California. As the market for servers has grown dramatically, the Santa Clara plant has reached capacity of 10,000 servers per year. Moon is considering two options to increase its capacity. The first option is to add 10,000 units of capacity to Santa Clara Plant at an annualized fixed cost of $10,000,000 plus $500 labor per server and $8,000 per server for the raw materials. In this case, the total capacity of Santa Clara plant will be 20,000 servers per year. The second option is to have Molectron, an independent assembler, manufacture servers for Moon Micro at a cost of $2,000 for each server plus raw material cost $8,000 per sever. Moon Micro sells each server for $15,000 (Revenue per server). Moon Micro must make this decision for a three-year time horizon (i. e. T=2). For the period 0 the demand stays fixed at 10,000 servers but in the following years (Period 1, 2) demand for Moon servers has an 80 percent chance of increasing 50 percent from the year before, and 20 percent chance of remaining the same as the year before. Molectron’s prices (i. e. $2,000 per server) may change as well. They are fixed for the first year but have a 50 percent chance of increasing 20 percent in the second and third year and a 50 percent chance of remaining where they are. Use a decision tree to compute the Net Present Value of Moon Micro’s cash flows if the servers are outsourced to Molectron and not produced at Moon Micro’s own plant

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