Advise on the most profitable course of action

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Reference no: EM132438272

The managing director of a company is deciding whether to build a large or small additional production facility to ensur that the company has sufficient operating capacity to satisfy current and future sales demand .in consultation with the company's senior management account,the following two possible scenarios in terms of net present value of future cash flows the alternatives are being considered

Possible outcome

Low demand. High demand

Action

Build small facility. £700000. £520000

build large facility. £420000. £2100000

It is estimated there is a 60% probability that demand will be low and a 40% probability that demand will be high.

A. Using the expected value decision rule, advise on the most profitable course of action

Reference no: EM132438272

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