[30 points] Gator Motors, a manufacturer of automobiles, nee…
[30 points] Gator Motors, a manufacturer of automobiles, needs to decide on one of two Maintenance Repair & Operations (MRO) suppliers for 3 years (this year, next year, and the year after). Both suppliers offer a full line of supplies at very similar service levels and lead times. However, their fee structures are quite different. The first supplier, MRO1981, sells all its products with a 5% commission charged on the price of the product. The second supplier, Gen-MRO’s pricing is based on a subscription fee of $10 million that must be paid upfront for a two-year period and a commission of 1% on the price of the product. Gator Motors currently spends $150 million on MRO supplies. Next year will likely be a strong year with a 75% chance that the MRO spending will be kept at $150 million, while there is a 25% chance that the spending will drop by 10%. For the year after next year, there is a 50% chance that the spending level will stay where it was in the next year and a 50% chance that it will drop by another 10%. Gator Motors uses a discount rate of 20%. a. [10 pts.] Develop a decision tree. b. [20 pts.] Decide and justify which supplier Gator Motors should purchase MRO supplies from.
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