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What is the company best bet

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A company is performing a major improvement task. The company has two choices: to build a new factory at $300,000 or to extend the area of the current one at $50,000.

If it elects to build a new facility, the company has a chance of 40% producing a large product and 60% a small one.

The large product yields $1,500,000 if the demand is high, $700,000 if the demand is medium, and $500,000 if the demand is low; with a risk of 30% high demand, 20% medium demand, and 50% low demand. The small product yields $1,300,000 if the demand is high, $800,000 if the demand is medium, and $600,000 if the demand is low; with a risk of 20% high demand, 50% medium demand, and 30% low demand.

If it elects to extend the area of the current facility, then it is expected to earn $700,000 if the demand is increases, or $500,000 if the demand remains the same. The risk is 60% that the demand will increase and 40% that the demand will not increase.

What is the company's best bet?

Reference no: EM132630082

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