Windhoek Renovations is a 100% Namibian owned plant hire and earth moving equipment company and was established in 1987. They offer years of experience in the plant hire and earth moving sector in Namibia. Striving forward has always been their focus, by suiting their customer’s plant hire needs with their best services possible and bringing their expert plant hire and earth moving advice to every job site.
Information concerning the operations of Windhoek Renovations is as follows
It is company policy to hire all plant and machinery required for the implementation of all orders obtained, rather than to purchase its own plant and machinery. Windhoek Renovations will enter into an advance hire agreement contract for the coming year at one of the three levels – high, medium, or low, which correspond to the requirements of a high, medium, or low level of orders obtained. The level of orders obtained will not be known when the advance hire agreement contract is entered into. A set of probabilities have been estimated by management as to the likelihood of the orders being high, medium, or lower level. Where the advance hire agreement entered is lower than that required for the level of orders obtained, a premium rate must be paid to obtain additional plant and machinery required. No refund is obtainable where the advance hire agreement for plant and machinery is at a level more than that required to satisfy the site clearance and preparation orders obtained.
A summary of the information relating to the above points is as follow
net margin earned by Windhoek Renovations for the coming year for each possible outcome. Based on maximizing expected value, calculate for Windhoek Renovations b) whether the advance contract for the hire of plant and machinery should be at a low, medium, or high level.