Marsh's Metals - Case Study Example

By choosing this alternative, the company can maximize their possible profit to about $51,250,000 (or more) as against selecting the alternative to sell the rhenium to Fleishman and making a possible profit of $45,000,000 (or more). Marsh’s Metals, a privately held metals broker in Prescott Florida, has acquired 10,000 kilograms1 of partially refined rhenium ore (Re) from the Niger government for $8,000 per kilogram. Bob Marsh, the owner of Marsh’s Metals, estimates that he would be able to sell all the ore for $12,000 or more per kilogram.

Bruce Fleishman Jr., president of the Fleishman Refining Company based in Walla Walla (WA), who is an old friend with whom Bob Marsh has done business in the past, has contacted him about purchasing 5,000 kilograms of rhenium ore for his specialty metals company. Bruce has offered a $1,000 premium per kilogram over the normal $12,000 Bob is asking for the ore. At about the same time Huffman Smelter and Minerals from San Antonio TX called to order 4,500 kilograms of the rhenium ore for their immediate needs and are willing to pay $14,500 per kilogram for the ore.

He is leaning on selling to Fleishman because he is a repeat customer at a 70% probability, but could be convinced to sell to Huffman if the monetary figures work out. Bob has two alternatives, sell the 5,000 kilograms rhenium to Fleishman or 4,500 kilograms to Huffman, and then later sell the remaining ore on the open market. Bob wants to maximize his profit by choosing an alternative. A Precision tree is constructed for the given scenario using two possible alternatives, sell the rhenium to Fleishman or to Huffman, and sell the remaining ore on the open market.

The branch with the maximum Expected Monetary Value (EMV) will determine the possible alternative. Marsh’s Metals has two alternatives, sell to Fleishman or to Huffman. This