JMA Manufacturing is considering expanding the company’s manufacturing capacity at its New Bern plant. Engineering has developed estimates for three expansion plans. A small expansion will cost $1 million. A medium-sized expansion will cost $2 million, while a major expansion will cost $5 million. The income generated by the expansion will depend on the demand for JMA’s product. Marketing has developed estimates for the net present value (not including the fixed cost of the capacity expansion) associated with each of the expansion alternatives based on low and high demand scenarios. If JMA decides to go with the small expansion, marketing estimates the company can earn $0.5 million if demand is low and $2 million if demand is high. With the medium expansion, income will be $2 million (low demand) and $3 million (high demand). With the large expansion, marketing estimates income will be $4 million if demand is low and $8 million if demand is high. Marketing estimates there is a one in three chance the company will experience high demand. Use Excel to create a sensitivity analysis chart that plots the expected outcome for each alternative over the entire range (0% through 100%) of high demand probabilities. If the probability of high demand is greater than 33%, which alternative would be the optimal choice using the Expected Value criterion? Group of answer choices Small Expansion Medium Expansion Medium or Large Expansion Small or Large Expansion Small or Medium Expansion Large Expansion
JMA Manufacturing is considering expanding the company’s manufacturing capacity at its New Bern plant. Engineering has developed estimates for three expansion plans. A small expansion will cost $1 million. A medium-sized expansion will cost $2 million, while a major expansion will cost $5 million.
The income generated by the expansion will depend on the demand for JMA’s product. Marketing has developed estimates for the net present value (not including the fixed cost of the capacity expansion) associated with each of the expansion alternatives based on low and high demand scenarios. If JMA decides to go with the small expansion, marketing estimates the company can earn $0.5 million if demand is low and $2 million if demand is high. With the medium expansion, income will be $2 million (low demand) and $3 million (high demand). With the large expansion, marketing estimates income will be $4 million if demand is low and $8 million if demand is high.
Marketing estimates there is a one in three chance the company will experience high demand.
Use Excel to create a sensitivity analysis chart that plots the expected outcome for each alternative over the entire range (0% through 100%) of high demand probabilities. If the probability of high demand is greater than 33%, which alternative would be the optimal choice using the
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 11 images
