Chapter 6 Designing Global Supply Chain Networks

Supply Chain Management, 5e (Chopra/Meindl)
Chapter 6 Designing Global Supply Chain Networks

6.1 True/False Questions
1) Decisions made during the supply chain design phase regarding significant investments in the
supply chain, such as the number and sie of plants to build, the number of truc!s to purchase or
lease, and "hether to build or lease "arehouse space, cannot be altered in the short term.
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Topic$ 6.1 The )mpact of *lobaliation on +upply ,hain -et"or!s
.earning /utcome$ ,ompare common approaches to supply chain design
() Decisions made during the supply chain design phase regarding significant investments in the
lease, and "hether to build or lease "arehouse space, rarely remain in place for several years.
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0) .ong1term contracts for both "arehousing and transportation re2uirements "ill be more
effective if the demand and price of "arehousing do not change in the future or if the price of
"arehousing goes up.
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Topic$ 6.3 'valuating -et"or! Design Decisions &sing Decision Trees
4) The degree of demand and price uncertainty has a significant influence on the appropriate
portfolio of long1 and short1term "arehousing space that a firm should carry.
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3) )f price and demand vary over time in a global net"or!, fle5ible production capacity can be
reconfigured to ma5imie profits in the ne" environment.
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,opyright 6 (710 8earson 'ducation, )nc. publishing as 8rentice 9all
6) # firm may choose to build a fle5ible global supply chain even in the presence of little
demand or supply uncertainty if certainty e5ists in e5change rates or prices.
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:) The present value of a stream of cash flo"s is "hat that stream is "orth in today;s dollars.
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Topic$ 6.4 Discounted ,ash Flo"s
<) The present value of future cash flo"s is found by using a discount factor.
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=) The rate of return k is also referred to as the present value of capital.
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17) # negative -8> for an option indicates that the option "ill lose money for the supply chain.
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11) The decision "ith the lo"est -8> "ill provide a supply chain "ith the highest financial
return.
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1() )n reality, demand and prices are highly uncertain and are li!ely to fluctuate during the life of
any supply chain decision.
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10) For a global supply chain, e5change rates and inflation are unli!ely to vary over time in
different locations.
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14) The multiplicative binomial cannot ta!e on negative values and can be used for factors li!e
demand, price, and e5change rates that cannot become negative.
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13) # logical ob?ection to both the multiplicative and additive binomial is the fact that the
underlying factor ta!es on t"o values at the end of each period.
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16) )f uncertainty is ignored, a manager "ill al"ays sign long1term contracts because they are
typically cheaper and avoid all fle5ible capacity because it is more e5pensive.
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1:) During net"or! design, managers need a methodology that allo"s them to estimate the
certainty in their forecast of demand and price and then incorporate this certainty into the
decision1ma!ing process.
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1<) Decision trees "ith D,Fs can be used to evaluate supply chain design decisions given
uncertainty in prices, demand, e5change rates, and inflation.
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1=) &ncertainty in demand and economic factors should not be included in the financial
evaluation of supply chain design decisions.
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(7) )n a comple5 decision tree, there are thousands of possible paths that may result from the
first period to the last.
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(1) +imulation methods are very good at evaluating a decision "here the path itself is decision
dependent.
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Topic$ 6.6 To /nshore or /ffshore$ 'valuation of *lobal +upply ,hain Design Decisions &nder
&ncertainty
(() +imulation models re2uire a higher setup cost to start and operate compared to decision tree
tools.
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&ncertainty
(0) The main advantage of simulation models is that they can provide lo"1cost evaluations of
comple5 situations.
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&ncertainty
(4) +trategic planning and financial planning should be combined during supply chain net"or!
design.
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Topic$ 6.: @a!ing *lobal +upply ,hain Design Decisions &nder &ncertainty in 8ractice
(3) The evaluation of supply chain net"or!s should not use multiple metrics.
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(6) Financial analysis should be used as an input to decision ma!ing, not as the decision1ma!ing
process.
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(:) /ne of the best "ays to speed up the process of financial analysis and arrive at a good
decision is to use estimates, e5cept "hen it appears that finding a very accurate input "ould ta!e
an inordinate amount of time.
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(<) *lobaliation has offered tremendous opportunity as "ell as decreased ris! in the
development of supply chains due to improved information flo".
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##,+A$ Dynamics of the *lobal 'conomy
(=) #ppropriate fle5ibility is an effective approach for a global supply chain to deal "ith a
variety of ris!s and uncertainties. '5tra fle5ibility is al"ays "orth the cost.
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Topic$ 6.0 %is! @anagement in *lobal +upply ,hains
07) Discounted cash flow BD,F) analysis evaluates the present value of any stream of future cash
flo"s and allo"s management to compare t"o streams of cash flo"s in terms of their financial
value.
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01) Chen faced "ith uncertain conditions it is al"ays best to sign long1term contracts Bbecause
they are typically cheaper) and avoid all fle5ible capacity Bbecause it is more e5pensive).
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##,+A$ #nalytic +!ills
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0() The value of fle5ibility increases "ith an increase in uncertainty.
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00) The inclusion of uncertainty typically increases the value of rigidity and decreases the value
of fle5ibility.
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04) /ffshoring typically lo"ers labor, "or!ing capital and fi5ed costs but increases ris! and
freight costs.
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6.( @ultiple ,hoice Questions
lease, and "hether to build or lease "arehouse space,
#) can be altered in the short term.
A) cannot be altered in the short term.
,) cannot be altered in the long term.
D) can only be altered in the short term.
') all of the above
#ns"er$ A
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() Decisions made during the supply chain design phase regarding significant investments in the
#) are realigned every fe" "ee!s.
A) only remain in place for several years.
,) rarely remain in place for several years.
D) only remain in place for a fe" "ee!s.
') often remain in place for several years.
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#) define the boundaries "ithin "hich the supply chain must compete.
A) have little impact on ho" the supply chain must compete.
,) are irrelevant regarding ho" the supply chain "ill compete.
D) are the only consideration regarding ho" the supply chain "ill compete.
') none of the above
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4) .ong1term contracts for both "arehousing and transportation re2uirements "ill be more
effective if
#) the demand and price of "arehousing do not change in the future.
A) the price of "arehousing goes up in the future.
,) demand drops in the future.
D) the price of "arehousing drops in the future.
') # and A only
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3) +hort1term contracts for both "arehousing and transportation re2uirements "ill be more
effective
#) if the demand and price of "arehousing do not change in the future.
A) if the price of "arehousing goes up in the future.
,) if either demand or the price of "arehousing drops in the future.
D) only if demand drops in the future.
') only if the price of "arehousing drops in the future.
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6) The degree of demand and price uncertainty has
#) no effect on the appropriate portfolio of long1 and short1term "arehousing space that a firm
should carry.
A) a limited influence on the appropriate portfolio of long1 and short1term "arehousing space
that a firm should carry.
,) a minor influence on the appropriate portfolio of long1 and short1term "arehousing space that
a firm should carry.
D) a significant influence on the appropriate portfolio of long1 and short1term "arehousing space
that a firm should carry.
') -one of the above are true.
#ns"er$ D
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:) &ncertainty of demand and price
#) drives the value of building fle5ible production capacity at a plant.
A) eliminates the value of building fle5ible production capacity at a plant.
,) facilitates the value of building fle5ible production capacity at a plant.
D) has no effect on the value of building fle5ible production capacity at a plant.
') -one of the above are true.
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<) )f price and demand do vary over time in a global net"or!,
#) fle5ible production capacity should not be used in the ne" environment.
A) fle5ible production capacity "ill be ineffective in the ne" environment.
,) fle5ible production capacity can be reconfigured to minimie profits in the ne" environment.
D) fle5ible production capacity can be reconfigured to ma5imie profits in the ne" environment.
') fle5ible production capacity should never be used in an uncertain environment.
#ns"er$ D
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&ncertainty
=) # firm may choose to build a fle5ible global supply chain even in the presence of little
demand or supply uncertainty if
#) certainty e5ists in both e5change rates and prices.
A) certainty e5ists in e5change rates or prices.
,) uncertainty e5ists in both e5change rates and prices.
D) uncertainty e5ists in e5change rates or prices.
') uncertainty e5ists only in e5change rates.
#ns"er$ D
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&ncertainty
17) The present value of a future stream of cash flo"s is "hat that stream
#) "as "orth in yesterday;s dollars.
A) is "orth in today;s dollars.
,) "ill be "orth in future dollars.
D) might be "orth in future dollars.
#ns"er$ A
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11) The process of evaluating the present value of any stream of future cash flo"s so that
management can compare t"o streams of cash flo"s in terms of their financial value is
#) annual cash flo" B#,F) analysis.
A) discretionary cash flo" BD,F) analysis.
,) discounted cash flo" BD,F) analysis.
D) future cash flo" BF,F) analysis.
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1() The present value of future cash flo" is found by
#) locating the correct factor on a 1table.
A) using a discount factor.
,) plotting the function on a graph.
D) adding the total of all future cash flo"s.
#ns"er$ A
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10) The discount factor used to obtain the present value of money in the ne5t period "here k
represents the rate of return is
#) k.
A) 1Dk.
,) 1/B1Dk).
D) k /B1Dk).
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14) The rate of return k is also referred to as the
#) discount rate.
A) hurdle rate.
,) opportunity cost of capital.
D) all of the above
#ns"er$ D
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13) Chat is the present value of a E(: revenue that "ill be received in one year "here the rate of
return is <F B.7<)G
#) E(.37
A) E13.77
,) E(3.77
D) E07.77
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16) The net present value B-8>) of a stream of cash flo"s is e2ual to
#) the sum of all cash flo"s for all periods being considered.
A) the sum of all cash flo"s for all periods being considered divided by the number of periods.
,) the average of all cash flo"s for all periods being considered.
D) the average of all cash flo"s for all periods being considered multiplied by the number of
periods.
') the sum of all cash flo"s for all periods being considered discounted by the rate of return for
each period.
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1:) # negative -8> Bnet present value) for an option indicates that the option "ill
#) gain money for the supply chain.
A) lose money for the supply chain.
,) ma5imie profit for the supply chain.
D) minimie profit for the supply chain.
#ns"er$ A
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1<) The decision "ith the highest -8> Bnet present value) "ill provide a supply chain "ith
#) the highest financial return.
A) the lo"est financial return.
,) a reasonable financial return.
D) the least desirable financial return.
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1=) The -8> Bnet present value) of a cash stream that is e2ual to E177 per period for 3 periods
"ith a rate of return of 17F B.17) per period "ould be
#) 0:=.7<.
A) 416.=<.
,) 377.77.
D) 617.31.
') 6:1.36.
#ns"er$ A
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(7) The -8> Bnet present value) of a cash stream that is e2ual to E:3 per period for 3 periods
"ith a rate of return of 17F B.17) per period "ould be
#) ((1.0:.
A) (<4.07.
,) 01(.:4.
D) 0:3.77.
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(1) )n reality, demand and prices are
#) highly certain and not li!ely to fluctuate during the life of any supply chain decision.
A) highly certain and li!ely to fluctuate during the life of any supply chain decision.
,) highly uncertain and not li!ely to fluctuate during the life of any supply chain decision.
D) highly uncertain and li!ely to fluctuate during the life of any supply chain decision.
#ns"er$ D
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(() For a global supply chain, e5change rates and inflation are
#) li!ely to vary over time in different locations.
A) not li!ely to vary over time in different locations.
,) not li!ely to vary over time in any locations.
D) li!ely to be stable over time in all locations.
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(0) The binomial representation of uncertainty is based on the assumption that "hen moving
from one period to the ne5t, the value of the underlying factor Bsuch as demand or price)
#) has only one possible outcome.
A) has only t"o possible outcomes 1 up or do"n.
,) has many possible outcomes.
D) cannot be accurately determined.
#ns"er$ A
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(4) )n the commonly used multiplicative binomial, it is assumed that the underlying factor
#) moves up by a factor u H 1 "ith probability p.
A) moves do"n by a factor u H 1 "ith probability p.
,) moves do"n by a factor d < 1 "ith probability 1 1 p.
D) either # or A
') either # or ,
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(3) The multiplicative binomial can be used for factors li!e demand, price, and e5change rates
that cannot become negative because it
#) can ta!e on negative values.
A) cannot ta!e on negative values.
,) can ta!e on positive values.
D) cannot ta!e on positive values.
') all of the above
#ns"er$ A
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(6) # logical ob?ection to both the multiplicative and additive binomial is the fact that the
underlying factor
#) ta!es on only one of t"o possible values at the end of each period.
A) ta!es on t"o values at the end of each period.
,) ta!es on one of many possible values at the end of each period.
D) ta!es on several of many possible values at the end of each period.
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(:) # decision tree is
#) a graphic device used to evaluate decisions under certainty.
A) a graphic device used to evaluate decisions under uncertainty.
,) a tabular device used to evaluate decisions under certainty.
D) a tabular device used to evaluate decisions under uncertainty.
#ns"er$ A
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(<) Decision tree analysis is based on Bellman's principle, "hich states that for any choice of
strategy in a given state,
#) the optimal strategy is the one that is selected if the entire analysis is assumed to begin in the
first period.
A) the optimal strategy is the one that is selected if the entire analysis is assumed to begin in the
last period.
,) the optimal strategy in the ne5t period is the one that is selected if the entire analysis is
assumed to begin in the last period.
D) the optimal strategy in the ne5t period is the one that is selected if the entire analysis is
assumed to begin in the ne5t period.
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(=) The first step in decision tree analysis methodology is to
#) identify factors such as demand, price, and e5change rate, "hose fluctuation "ill be
considered over the ne5t T periods.
A) identify the periodic discount rate k for each period.
,) start at period T, "or! bac! to 8eriod 7 identifying the optimal decision and the e5pected cash
flo"s at each step. '5pected cash flo"s at each step in a given period should be discounted bac!
"hen included in the previous period.
D) identify the duration of each period Bmonth, 2uarter, etc.) and the number of periods T over
"hich the decision is to be evaluated.
') identify representations of uncertainty for each factorI that is, determine "hat distribution to
use to model the uncertainty.
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07) The last step in decision tree analysis methodology is to
#) identify factors such as demand, price, and e5change rate, "hose fluctuation "ill be
A) identify the periodic discount rate k for each period.
,) start at period T, "or! bac! to 8eriod 7, identifying the optimal decision and the e5pected
cash flo"s at each step. '5pected cash flo"s at each step in a given period should be discounted
bac! "hen included in the previous period.
D) identify the duration of each period Bmonth, 2uarter, etc.) and the number of periods T over
') identify representations of uncertainty for each factorI that is, determine "hat distribution to
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01) &ncertainty in demand and economic factors should be included in the financial evaluation
of supply chain design decisions, because
#) the e5clusion of certainty may have a significant impact on this evaluation.
A) the e5clusion of uncertainty may have a significant impact on this evaluation.
,) the inclusion of certainty may have a significant impact on this evaluation.
D) the inclusion of uncertainty may have a significant impact on this evaluation.
#ns"er$ D
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0() Fle5ibility should be valued by ta!ing into account uncertainty in demand and economic
factors. )n general, fle5ibility "ill tend to
#) decrease in value "ith a decrease in certainty.
A) increase in value "ith an increase in uncertainty.
,) decrease in value "ith an increase in uncertainty.
D) increase in value "ith an increase in certainty.
') -one of the above are accurate.
#ns"er$ A
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00) # ma?or factor that ma!es the decision tree methodology 2uite po"erful is
#) the choice of certainty.
A) the choice of discount rate.
,) the choice of uncertainty level.
D) the choice of additive factor.
') all of the above
#ns"er$ A
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04) The appropriate discount rate used in decision tree methodology
#) should be ris!1ad?usted and ris! may vary by period and decision node.
A) should be ris!1ad?usted and ris! may not vary by period and decision node.
,) should not be ris!1ad?usted and ris! may vary by period and decision node.
D) should not be ris!1ad?usted and ris! may not vary by period and decision node.
') -one of the above are accurate.
#ns"er$ #
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03) Firms should use simulation for evaluating decisions "hen
#) underlying decision trees are simple and e5plicit solutions for the underlying decision tree are
difficult to obtain.
A) underlying decision trees are very comple5 and e5plicit solutions for the underlying decision
tree are difficult to obtain.
,) underlying decision trees are simple and e5plicit solutions for the underlying decision tree are
easy to obtain.
D) underlying decision trees are very comple5 and e5plicit solutions for the underlying decision
tree are easy to obtain.
#ns"er$ A
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06) )n a comple5 decision tree there are
#) only a fe" possible paths that may result from the first period to the last.
A) less than thirty possible paths that may result from the first period to the last.
,) thousands of possible paths that may result from the first period to the last.
D) an infinite number of possible paths that may result from the first period to the last.
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0:) +imulation models
#) re2uire a higher setup cost to start and operate compared to decision tree tools.
A) re2uire a lo"er setup cost to start and operate compared to decision tree tools.
,) re2uire a higher setup cost to start but less to operate compared to decision tree tools.
D) re2uire a lo"er setup cost to start but more to operate compared to decision tree tools.
#ns"er$ #
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&ncertainty
0<) +trategic planning and financial planning
#) should be performed independently during supply chain net"or! design.
A) should be performed se2uentially during supply chain net"or! design.
,) should be performed hierarchically during supply chain net"or! design.
D) should be performed concurrently during supply chain net"or! design.
') should be combined during supply chain net"or! design.
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0=) The evaluation of supply chain net"or!s
#) should use only one metric.
A) should use multiple metrics.
,) should not use more than one metric.
D) should not use multiple metrics.
') should be sub?ective.
#ns"er$ A
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47) Financial analysis should be used as
#) the decision1ma!ing process.
A) an alternative decision1ma!ing process.
,) an input to decision ma!ing, not as the decision1ma!ing process.
D) all of the above
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41) /ne of the best "ays to speed up the process of financial analysis and arrive at a good
decision is to
#) use estimates of inputs "hen it appears that finding a very accurate input "ould ta!e an
inordinate amount of time.
A) use estimates bac!ed up by sensitivity analysis "hen it appears that finding a very accurate
input "ould ta!e an inordinate amount of time.
,) use estimates of inputs e5cept "hen it appears that finding a very accurate input "ould ta!e
an inordinate amount of time.
D) ma!e sure that every detail is very accurate.
#ns"er$ A
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4() The tailored strategy JFocus on lo"1cost, decentralied capacity for predictable demandJ
follo"s "hich ris! mitigation strategyG
#) *et redundant suppliers
A) )ncrease capacity
,) )ncrease responsiveness
D) )ncrease inventory
#ns"er$ A
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40) Fle5ibility can be divided into three broad categories. Chich of the follo"ing is not one of
the categoriesG
#) -e" product fle5ibility
A) @i5 fle5ibility
,) %is! fle5ibility
D) >olume fle5ibility
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44) # labor dispute is a ris! driver to be considered during net"or! design. Chat category does a
Jlabor disputeJ belongG
#) Disruptions
A) )nventory ris!
,) +ystems ris!
D) ,apacity ris!
#ns"er$ #
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43) Chat is the type of this net"or! designG
#) Dedicated net"or!
A) Fully fle5ible net"or!
,) ,hained net"or! "ith one long chain
D) ,hained net"or! "ith t"o long chains
#ns"er$ A
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Topic$ 6.( The /ffshoring Decision$ Total ,ost
.earning /utcome$ ,ompare and contrast different sourcing strategies including outsourcing
and insourcing
46) +imulation methods are very good at evaluating decisions "hen
#) the paths are decision dependent.
A) the decision rules are simple.
,) there are different forms of uncertainty.
D) implicit solutions are needed for analysis.
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&ncertainty
4:) The te5tboo! mentions that decision ma!ers should design global supply chain net"or!s
considering a portfolio of strategic options including
#) the option to "ait, build finite capacity, build fle5ible capacity.
A) sign shorter1term contracts, purchase from the spot mar!et.
,) uncertainty can usually be disregarded.
D) the option to "ait, build e5cess capacity, build fle5ible capacity.
#ns"er$ D
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6.0 'ssay Questions
1) '5plain additive and multiplicative binomial representations of uncertainty.
#ns"er$ The binomial representation of uncertainty is based on the assumption that "hen
moving from one period to the ne5t, the value of the underlying factor Bsuch as demand or price)
has only t"o possible outcomes K up or do"n. )n the commonly used multiplicative binomial, it
is assumed that the underlying factor either moves up by a factor u H 1 "ith probability p, or
do"n by a factor d L 1 "ith probability 1 1 p. )n the additive binomial, it is assumed that the
underlying factor increases by u in a given period "ith probability p and decreases by d "ith
probability 1 1 p. The multiplicative binomial cannot ta!e on negative values and can be used for
factors li!e demand, price, and e5change rates that cannot become negative. )t also has the
advantage of the gro"th or decline in the given factor being proportional to the current value of
the factor and not fi5ed independent of sie. # logical ob?ection to both the multiplicative and
additive binomial is the fact that the underlying factor ta!es on only one of t"o possible values at
the end of each period. ,ertainly a price can change to more than ?ust t"o values. Aut by ma!ing
the period short enough, this assumption may be ?ustified.
Diff$ 0
() +ummarie the steps in the decision tree analysis methodology.
#ns"er$ The decision tree analysis methodology is summaried as follo"s$
1. )dentify the duration of each period Bmonth, 2uarter, etc.) and the number of periods T over
(. )dentify factors such as demand, price, and e5change rate, "hose fluctuation "ill be
0. )dentify representations of uncertainty for each factorI that is, determine "hat distribution to
4. )dentify the periodic discount rate k for each period.
3. %epresent the decision tree "ith defined states in each period, as "ell as the transition
probabilities bet"een states in successive periods.
6. +tarting at period T, "or! bac! to 8eriod 7, identifying the optimal decision and the e5pected
cash flo"s at each step. '5pected cash flo"s at each step in a given period should be discounted
bac! "hen included in the previous period.
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0) Discuss the ideas that managers should consider to ma!e better supply chain net"or! design
decisions under uncertainty.
#ns"er$ @anagers should consider the follo"ing ideas to help them ma!e better net"or! design
decisions under uncertainty$
1. Combine strategic planning and financial planning during network design. )n most
organiations, financial planning and strategic planning are performed independently. +trategic
planning tries to prepare for future uncertainties but often "ithout rigorous 2uantitative analysis,
"hereas financial planning performs 2uantitative analysis but assumes a predictable or "ell1
defined future. Decision ma!ers should design supply chain net"or!s considering a portfolio of
strategic optionsMthe option to "ait, build e5cess capacity, build fle5ible capacity, sign long1term
contracts, purchase from the spot mar!et, and so forth. The various options should be evaluated
in the conte5t of future uncertainty.
(. Use multiple metrics to evaluate suppl chain networks. #s one metric can only give part of
the picture, it is beneficial to e5amine net"or! design decisions using multiple metrics such as
firm profits, supply chain profits, customer service levels, and response times. /ften, different
metrics "ill recommend different decisions and by using multiple metrics, the differences
bet"een the strategic choices "ill become clearer. The best decisions can be made "hen a
multitude of metrics are available, because each metric enhances the overall vie" of the
alternatives being considered.
0. Use financial analsis as an input to decision making, not as the decision!making process.
Financial analysis is a great tool in the decision1ma!ing process, as it often produces an ans"er
and an abundance of 2uantitative data to bac! up that ans"er. 9o"ever appealing this may be,
management should not rely solely on financial analysis to ma!e decisions. &se of this analysis
as a large part of the decision1ma!ing process is fine, but other inputs into the decision process
that are difficult to 2uantify should be included in the analysis as "ell. Financial methodologies
alone do not provide a complete picture of the alternatives. These impacts should be considered
in addition to the ra" financial analysis. )n the final analysis, management must use other inputs
beyond financial analysis in the decision1ma!ing process to get the most complete vie" of the
alternatives possible.
4. Use estimates along with sensitivit analsis. @any of the inputs into financial analysis can be
difficult, if not impossible, to nail do"n in a very accurate fashion. This can cause financial
analysis to be a long and dra"n out process. /ne of the best "ays to speed the process along and
arrive at a good decision is to use estimates of inputs "hen it appears that finding a very accurate
input "ould ta!e an inordinate amount of time. &sing estimates is fine "hen the estimates are
bac!ed up by sensitivity analysis. Ay performing sensitivity analysis on the input;s range,
managers can often sho" that no matter "here the true input lies "ithin the range, the outcome
remains the same. Chen this is not the case, they have highlighted a !ey variable to ma!ing the
decision and it li!ely deserves more attention to arrive at a more accurate ans"er. )n summary, to
effectively ma!e supply chain design decisions, managers need to ma!e estimates of inputs and
then test all recommendations "ith sensitivity analysis.
Diff$ (
61(1
4) The NOP ,ompany has a choice bet"een t"o "arehouses. # lease at location # costs E1777
per month "ith a payment of E(777 up front to guarantee the 0 year lease. .ocation A "ould cost
E1(77 per month and "ould be leased from month to month. The anticipated revenue in either
location is E1377 per month. The estimated rate of return is 17F per year. &sing net present
value, determine "hich location "ould be the better choice.
#ns"er$ .ocation #
'5pected annual profit Q 1( R BE1377 1 E1777) Q E6777
-8> Q E6777 D BE6777/1.1) D BE6777/1.1
(
) 1 E(777 Q E14,410.((
.ocation A
'5pected annual profit Q 1( R BE1377 1 E1(77) Q E0677
-8> Q E0677 D BE0677/1.1) D BE0677/1.1
(
) Q E=<4:.=0
.ocation # is the better choice.
Diff$ (
61((

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