Expando, Inc, is considering the possibility of building an additional factory that would produce a new ld company is currently considering two options. The first is a small facility that it could build at a cost of $7 million. If demand for new products is low, the company expects to receive $9 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects $14 milion in discounted revenues using the small facility. The second option is to build a large factory at a cost of $8 milion. Were demand to be low, the company would expect $9 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $15 milion. In either case, the probability of demand being high is 0.30, and the probability of it being low is 070. Not constructing a new factory would result in no additional revenue being generated because the current factories cannot produce these new products a. Calculate the NPv for the following (Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in millions rounded to 1 decimal place) Plans NPV Small tacity Do nothing Large tacty milion milon milon
Expando, Inc, is considering the possibility of building an additional factory that would produce a new ld company is currently considering two options. The first is a small facility that it could build at a cost of $7 million. If demand for new products is low, the company expects to receive $9 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects $14 milion in discounted revenues using the small facility. The second option is to build a large factory at a cost of $8 milion. Were demand to be low, the company would expect $9 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $15 milion. In either case, the probability of demand being high is 0.30, and the probability of it being low is 070. Not constructing a new factory would result in no additional revenue being generated because the current factories cannot produce these new products a. Calculate the NPv for the following (Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in millions rounded to 1 decimal place) Plans NPV Small tacity Do nothing Large tacty milion milon milon
Practical Management Science
6th Edition
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Publisher:WINSTON, Wayne L.
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Transcribed Image Text:Expando, Inc, is considering the possibility of building an additional factory that would produce a new addition to its product line. The
company is currently considering two options. The first is a small facility that it could build at a cost of $7 million. If demand for new
products is low, the company expects to receive $9 million in discounted revenues (present value of future revenues) with the small
facility. On the other hand, if demand is high, it expects $14 milon in discounted revenues using the small facility. The second option is
to build a large factory at a cost of $8 million. Were demand to be low, the company would expect $9 million in discounted revenues
with the large plant. If demand is high, the company estimates that the discounted revenues would be $15 million. In either case, the
probability of demand being high is 0.30, and the probability of it being low is 070. Not constructing a new factory would result in no
additional revenue being generated because the current factories caninot produce these new products.
a. Calculate the NPV for the following (Leave no cells blank - be certain to enter "0" wherever required, Enter your answers in
millions rounded to 1 decimal place.)
Plans
NPV
Small tacility
million
Do nothing
million
Large facility
milion
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