How construct a new factory would result

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Q. Expando Inc., is considering the possibility of building an additional factory which would produce a new addition to its product line. The organization is currently considering two options. The first is a small facility which it could build at a cost of $6 million. If demand for new products is low, the organization expects to receive $10 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects $12 million in discounted revenues utilizing the small facility. The second option is to build a large factory at a cost of $9 million. Were demand to be low, the organization would expect $10 million in discounted revenues with the large plant. If demand is high, the organization estimates which the discounted revenues would be $14 million. In either case, the probability of demand being high is .40 also the probability of it being low is .60. Not constructing a new factory would result in no additional revenue being generated because the current factories cannot produce these new products. Construct a decision tree to help Expando make the best decision.

Reference no: EM1377814

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