Expando, Incorporated is considering the possibility of building an additional factory that would produce a new addition to line. The company is currently considering two options. The first is a small facility that it could build at a cost of $8 million. I- new products is low, the company expects to receive $9 million in discounted revenues (present value of future revenues) small facility. On the other hand, if demand is high, it expects $11 million in discounted revenues using the small facility. The option is to build a large factory at a cost of $10 million. Were demand to be low, the company would expect $11 million in di revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $15 million 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 result in no additional revenue being generated because the current factories cannot produce these new products. a. Calculate the NPV for the following: Note: Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in millions rounded to 1 de place.
Expando, Incorporated is considering the possibility of building an additional factory that would produce a new addition to line. The company is currently considering two options. The first is a small facility that it could build at a cost of $8 million. I- new products is low, the company expects to receive $9 million in discounted revenues (present value of future revenues) small facility. On the other hand, if demand is high, it expects $11 million in discounted revenues using the small facility. The option is to build a large factory at a cost of $10 million. Were demand to be low, the company would expect $11 million in di revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $15 million 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 result in no additional revenue being generated because the current factories cannot produce these new products. a. Calculate the NPV for the following: Note: Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in millions rounded to 1 de place.
Essentials of Business Analytics (MindTap Course List)
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ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
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Chapter15: Decision Analysis
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Problem 10P: Hemmingway, Inc. is considering a $5 million research and development (R&D) project. Profit...
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![Problem 4-8 (Algo)
Expando, Incorporated 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 $8 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 $11 million in discounted revenues using the small facility. The second
option is to build a large factory at a cost of $10 million. Were demand to be low, the company would expect $11 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 0.40, 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:
Note: Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in millions rounded to 1 decimal
place.
Answer is complete but not entirely correct.
NPV
1.9 x million
0.0
million
2.6
million
Plans
Small facility
Do nothing
Large facility
$
b. The best decision to help Expando is
O to do nothing.
to build the small facility.
to build the large facility. ✔](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6029d780-98a1-425e-ab02-f1fbbfa88058%2F93616bfa-2f96-43a1-bd21-97a6e9e502ef%2F5nfdx8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 4-8 (Algo)
Expando, Incorporated 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 $8 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 $11 million in discounted revenues using the small facility. The second
option is to build a large factory at a cost of $10 million. Were demand to be low, the company would expect $11 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 0.40, 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:
Note: Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in millions rounded to 1 decimal
place.
Answer is complete but not entirely correct.
NPV
1.9 x million
0.0
million
2.6
million
Plans
Small facility
Do nothing
Large facility
$
b. The best decision to help Expando is
O to do nothing.
to build the small facility.
to build the large facility. ✔
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