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RefCo is a heater manufacturer that currently makes its heaters in Ohio. The manufacturing cost at the Ohio plant is S600 per heater RefCo sells the heaters for $8000. Its current yearly demand is 1000 heaters. RefCo estimates that each year, demand has a 50 percent chance of increasing 10 percent from the year before and a 50 percent chance of remaining the same as the year before. The Ohio facility has a capacity of 1000 units RefCo is considering two options. The first option is to build a new facility in Michigan. The new facility will have a capacity of 500 and RefCo will incur a one time cost of $1,000,000. The manufacturing cost at the new facility will be $5000 per unit because of updated manufacturing processes. The second option is to buy pre-assembled heaters from Heatco when demand goes over 1000. The current cost of preassembled heaters from Heatco is $3000 per unit. RefCo expects Heatco to increase its prices each year RefCo estimates that each year there is a 50% chance that the price will increase by 10% or there is a 50% chance that the price will increase by 5%. Use a decision tree to determine which option RefCo should use Consider the expected profits from the current year, and the next two years in your decision making process Assume a discount factor of 10's over the next two years

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