Build a large plant, You have a choice to build a small new

Build a large plant

Reference no: EM13167517

You have a choice to build a small new plant, do nothing (the value of this is zero), or build a large plant. We'll use Net Present Value to compute this. Here's the formula:

The likelihood of high revenue plus the likelihood of low revenue minus fixed costs (the price of the factory).

Small plant:

70 percent chance of high revenue of 10 million

30 percent chance of low revenue of 5 million

Plant costs to make the factory - 3 million

Large Facility

80 percent chance of high revenue of 15 million

20 percent chance of low revenue of 7 million

Plant costs to make the factory - 8 million

Reference no: EM13167517

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