Leskoshe Inc. manufactures specialty pollution-sensing equipment for the renewab

Question

Leskoshe Inc. manufactures specialty pollution-sensing equipment for the renewable energy industry. Their existing equipment is not capable of sensing pollution properly in high wind environment and the company is considering replacing the existing equipment with an advanced model. The new equipment will have the similar functionality to the existing one with a robust sensing capability. Therefore, Leskoshe has two options to consider: Option (a) use the existing equipment or Option (b) complete the new model design and manufacture the advanced equipment. If Leskoshe, proceeds with the existing equipment (option a), the firm can expect sales to be 80,000 units at selling prices of $510 each, with a probability of 0.73 and a 0.27 probability of 60,000 units at selling price of $510. However, if they use the advanced equipment (option b), the firm expects sales of 75,000 units at selling price $730, with a probability of 0.65 and a 0.35 probability of 65,000 units at selling price of $730. However, to complete the advanced model design willadd an extra cost of $100,000, and is only applicable in option b. Which option has the highest expected monetary value (EMV)? The EMV for opti na is $ and the EM for option bis$ Therefore, option has the highest expected monetary value. Enter your responses as tegers.

Explanation / Answer

Existing equipment EMV = 80000*510*.73 + 60000*510*.27 58400 = 38046000 $

Advanced equipment EMV = 75000*730*.65 + 65000*730*.35 = 52195000 $

Hence option advanced equipment has the highest expected monetary value.

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