3.2 Designing Global SC Networks

Question 1

an investment creates:

Answer 1

a sequence of cash flows(costs and revenues) over a time horizon
risk breakers can affect cash flows
the cash flows have to be correctly estimated to ensure it will be successful

Question 2

Discounted cash flow analysis

Answer 2

allows you to compare the past and future cash flows
100€ now vs. 100€ in one year
1€ the end of the period is equal to 1€/(1+k)

Question 3

Rate of return

Answer 3

k
discount rate
percent increased or decreased
1€ now results in (1+k)€ at the end of the period

Question 4

how to make a decision tree

Answer 4

number of time periods (T)
factors affecting the value of the decisions
discount rate (k)

Question 5

steps in the decision tree

Answer 5

write the probabilities and possible outcomes that can change
calculate the profit or each outcome
caluculate the expected profit of the decisions
calculate the NPV

Question 6

Expected Profit

Answer 6

the sum of the probability*the profit of the outcome of each option