I need decision tree for Case II 1Construction strategy for Sunray Co.Case 1.Sunray Co. plans to open a new plant in the East Midlands. The company can open a full-size plant now ora small-size plant that can be expanded 2 years later if warranted by high demand. The time horizon for thedecision problem is 10 years. Sunray Co. estimates that the probabilities for high and low demands over thenext 10 years are .75 and .25, respectively. The cost of immediate construction is £5 million for a large plantand £1 million for a small plant. The expansion cost of a small plant 2 years from now is £4.2 million. Theincome from the operation over the next 10 years is given Table 1.Table 1: Data for Sunray Co.: case 1Annual income estimates (in £1,000)High demandAlternativeLow demandFull-size plant nowSmall-size plant nowExpanded plant in 2 years1000300250200900200Your team has been formed to develop a construction strategy for Sunray Co. over the next 10 years, given thatafter 2 years the company has the option to expand or not expand the small plant.Case 2.Now develop a construction strategy for Sunray Co. assuming that the demand can be high, medium, and lowwith probabilities .7, .2, and .1 respectively. Expansion of a small plant will occur only if demand in the first 2years is high. Table 2 provides estimates of the annual income.Ignore the time value for money.Table 2: Data for Sunray Co.: case 2Annual income estimates (in £1,000)High demand1000AlternativeFull-size plant nowSmall-size plant nowExpanded plant in 2 yearsMedium demandLow demand500300400280150900600200

A decision tree is the diagrammatic representation of the various alternatives available for a…

Answered: Now develop a construction strategy for…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 30P

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