Question

Mr. Hess of California Windows, Inc. is considering making a change in the material the firm uses for panes in its residential window line. The new material has a slight mirror attribute that assists in reflecting ultra-violet light and restricts the transmission of heat. The new material will raise the cost of a standard window by $3.76. The current window is in the mature stage of the life cycle and with no modifications, Hess has estimated that sales of the window line will be 240,000 units per year for the next 5 years with a probability of 0.3, and has a 0.70 probability of selling 180,000 units per year over the five years. The standard profit margin of a window unit is $45. With the new glass material, the selling price per unit can be increased by $5 (but with the added cost, the net increase in profit margin =(($45plus $5)minus $3.76) = $46.24). However, Hess estimates that the demand for the newly designed window will be 210,000 units with a probability of 0.6, and that there will be a 0.4 probability of sales of 150,000 units.

1. When using the existing material, the expected monetary value (EMV)=$    (enter your response as a whole number).

2. When using the NEW material, the expected monetary value (EMV)=$    (enter your response as a whole number).

Answer 1