A shelve manufacturer is developing a plan for the following two years. The question iswhether to lease a large workshop space with highproduction capacity or two workshop spaces with a smaller capacity. The initial cost to lease a large workshop space is equal tothe total cost of leasing two smaller ones. If the large workshop space is leased and customer demand is high, then NPV is $8,500,000 annually. If the large workshop is leased and customer demand is low, then NPV is$4,500,000. If two small workshops are leased and demand is low, the total NPV is $6,500,000 but if they experience high demand, the total NPV of two small offices will be $8,000,000.Some studies have been done on market dynamic and the market expert suggested that the likelihood of high demand is 0.7.Use the above information to determine which option returns the best NPV outcome in thetwo-year period.The rate of return is 0.1.
A shelve manufacturer is developing a plan for the following two years. The question iswhether to lease a large workshop space with highproduction capacity or two workshop
spaces with a smaller capacity. The initial cost to lease a large workshop space is equal tothe total cost of leasing two smaller ones.
If the large workshop space is leased and customer demand is high, then NPV is $8,500,000
annually. If the large workshop is leased and customer demand is low, then NPV is$4,500,000.
If two small workshops are leased and demand is low, the total NPV is $6,500,000 but if they experience high demand, the total NPV of two small offices will be $8,000,000.Some studies have been done on market dynamic and the market expert suggested that the
likelihood of high demand is 0.7.Use the above information to determine which option returns the best NPV outcome in thetwo-year period.The
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