(15 points) Under the current scenario, where Sattva sources component from Maxtronics through long-term capacity reservation contract, how much capacity should the company reserve? What is the expected profit of Sattva and Maxtronics under the current scenario?
(20 points) Now consider the scenario where Sattva sources the component through options contract as proposed by Shyam. How many units should they reserve through options? What is the expected number of options exercised by Sattva? What are the expected profits of Sattva and Maxtronics under the proposed options-based contracting scenario?
(20 points) Now consider the buyback-based contract as proposed by Nagesh. How many units should Sattva buy now? What is the expected number of units bought back by Maxtronics? What are the expected profits of Sattva and Maxtronics under the suggested buyback contract?
(20 points) Based on the above analysis, suggest which contract is best suited for Sattva? What is the implication of Sattva’s chosen contract on Maxtronics’ profits? What would you recommend to Nagesh?
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