Increased demand for baked goods

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Reference no: EM132221764

The owners of? Sweet-Tooth Bakery have determined that they need to expand their facility in order to meet their increased demand for baked goods. The decision? is whether to expand now with a large facility or expand small with the possibility of having to expand again in 5 years. The owners have estimated the following chances for? demand: ?

· The likelihood of demand being high is 0.8.

?· The likelihood of demand being low is 0.2 for each alternative have been estimated as? follows:

?· Large expansion has an estimated profitability of either? $130,000 or ?$40,000, depending on whether demand turns out to be high or low.

?· Small expansion has a profitability of? $40,000, assuming demand is low.

?· Small expansion with an occurrence of high demand would require considering whether to expand further. If the bakery expands at this? point, the profitability is to be? $60,000, if? not, $20,000.

What decision should the bakery? make, and what is the expected value of that ?decision?

Reference no: EM132221764

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