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 $6 million, If demand for new products is low, the company 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 using the small facility. The second option is to build a large factory at a cost of $9 million, Were demand to be low, the company would expect $10 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $14 million, In either case, the probability of demand being high is 0.40, and the probability of it being low is 0.60. 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 milion millon Small facilty Do nothing Large facility milion b. The best decision to help Expando is O to build the small facility. O to build the large facility. O to do nothing.
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 $6 million, If demand for new products is low, the company 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 using the small facility. The second option is to build a large factory at a cost of $9 million, Were demand to be low, the company would expect $10 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $14 million, In either case, the probability of demand being high is 0.40, and the probability of it being low is 0.60. 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 milion millon Small facilty Do nothing Large facility milion b. The best decision to help Expando is O to build the small facility. O to build the large facility. O to do nothing.
Advanced Engineering Mathematics
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ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
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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 $6 million. If demand for new
products is low, the company expects to receive $10 milion 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 using the smail facility. The second option is
to build a large factory at a cost of $9 million. Were demand to be low, the company would expect $10 million in discounted revenues
with the large plant. If demand is high, the company estimates that the discounted revenues would be $14 million. In either case, the
probability of demand being high is 0.40, and the probability of it being low is 0.60. Not constructing a new factory would result in no
additional revenue being generated because the current factories cannot produce these new products.
clook
References
a. Calculate the NPV for the following: (Leave no cells blank - be certain to enter "O" wherever required. Enter your answers in
millions rounded to 1 decimal place.)
Plans
NPV
milion
million
Small faciley
Do nothing
Large facility
million
b. The best decision to help Expando is
O to build the small facility.
O to build the large facility.
O to do nothing.
LO
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