BUYU Manufacturing has been contracted to provide SAEL Electronics with printed circuit and motherboards (PC) boards under the following terms:
BUYU manufactures the PC boards through a process called batching, and manufacturing costs are as follows:
BUYU must decide whether it should manufacture all 200,000 PC boards now, or if it should manufacture 100,000 now and the other 100,000 boards only if SAEL decides to buy them. If BUYU manufactures 200,000 now and SAEL does not exercise its option, then BUYU will lose the manufacturing cost of the extra 100,000 boards. BUYU believes that there is a 50% chance that SAEL will exercise its option to buy the additional 100,000 PC boards.