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

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

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Description: JMA Manufacturing is considering expanding the company's manufacturing capacityat 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

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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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 smaller than 33%, which alternative
would be the optimal choice using the Expected Value criterion?

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