Phillip Witt, president of Witt Input Devices, wishes to create a portfolio of local suppliers for his new line of keyboards. Suppose that Phillip is willing to use one local supplier and up to two more located in other territories within the country. This would reduce the probability of a super-event that might shut down all suppliers at the same time at least 2 weeks to 0,4% but due to increased distance the annual cost for managing each of the distant suppliers would be $24,500 (still $16,000 for the local supplier). A total shutdown would cost the company approximately $470,000. He estimates the unique-event risk for any of the suppliers to be 5%. Assuming that the local supplier would be the first one chosen, how many suppliers should Witt Input Devices use?
Find the EMV for alternatives using 1,2,or 3 suppliers.
EMV (1) -- $