1. Draw a decision tree reflecting the uncertainty over the next tw...

1. Draw a decision tree reflecting the uncertainty over the next two periods. Identify each node in terms of demand and exchange rate and the transition probabilities.

2. If management at Forever Young is to pick only one of the two suppliers, which one would you recommend? What is the NPV of expected profit over the next two periods for each of the two choices? Assume a discount factor of k-0.1 per period.

3. What do you think about the hybrid approach? Is it worth paying the local supplier extra to use it as part of a hybridstrategy? For the hybrid approach, assume that management will order a base load of 900 units from the Chinese supplier for each of the two periods, making up any short-fall in each period at the local supplier. Evaluate the NPV of expected profits for the hybrid option assuming a discount factor of k - 0.1 per period.