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

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 30P

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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 the 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 below, 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 eithercase, the probability of demand being high is .40, and the probability of it being low is .60. Not constructing a new factory would result in no additional revenue being generated because…
ABC 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 2 options. The first is a small facility that could build be built at a cost of $6million. If demand for the new product is low, the company expects to receive $10million in discounted revenues(present value of future revenues) with the small building. On the other hand, if demand is high, it expects $12million in discounted revenues using the small building.The second option is to build a large facility at a cost of $9million. If the demand were to low, the company would expect $10million in discounted revenues with the large building. If demand is high, the company estimates that the discounted revenues would be $14million. 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 facility would result in no additional revenue being generated…
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 $9 million. If demand for new products is low, the company expects to receive $11 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 $12 million. Were demand to be low, the company would expect $13 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $18 million. In either case, the probability of demand being high is 0.50, and the probability of it being low is 0.50. Not constructing a new factory would result in no additional revenue being generated because…
Cogswell Cogs, 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 $7.2 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 $8 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 .45, and the probability of it being low is .55. Not constructing a new factory would result in no additional revenue being…
Jamison Health Care is trying to decide if it should eliminate its orthopedic care division. Last year,the orthopedic division had a total contribution margin of $100,000 and allocated overhead costs of$200,000, of which $90,000 could be eliminated if the division were dropped. Based solely on theabove financial information, should Jamison keep the division?
Spectrum Hair Salon is considering expanding itsbusiness, as it is experiencing a large growth. Th e question iswhether it should expand with a bigger facility than needed,hoping that demand will catch up, or with a small facility,knowing that it will need to reconsider expanding in three years.Th e management at Spectrum has estimated the followingchances for demand:• Th e likelihood of demand being high is 0.70.• Th e likelihood of demand being low is 0.30.Estimated profi ts for each alternative are as follows:• Large expansion has an estimated profi tability of either$100,000 or $70,000, depending on whether demand turnsout to be high or low.• Small expansion has a profi tability of $50,000, assuming thatdemand is low.• Small expansion with an occurrence of high demand wouldrequire considering whether to expand further. If thebusiness expands at this point, the profi tability is expected tobe $90,000. If it does not expand further, the profi tability isexpected to be $60,000.Draw a…
Spectrum Hair Salon is considering expanding itsbusiness, as it is experiencing a large growth. Th e question iswhether it should expand with a bigger facility than needed,hoping that demand will catch up, or with a small facility,knowing that it will need to reconsider expanding in three years.Th e management at Spectrum has estimated the followingchances for demand:• Th e likelihood of demand being high is 0.70.• Th e likelihood of demand being low is 0.30.Estimated profi ts for each alternative are as follows:• Large expansion has an estimated profi tability of either$100,000 or $70,000, depending on whether demand turnsout to be high or low.• Small expansion has a profi tability of $50,000, assuming thatdemand is low.• Small expansion with an occurrence of high demand wouldrequire considering whether to expand further. If thebusiness expands at this point, the profi tability is expected tobe $90,000. If it does not expand further, the profi tability isexpected to be $60,000.
Orpheum Productions in Nevada is considering three mutually exclusive alternatives for lighting enhancements to one of its recording studios. Each enhancement will increase revenues by attracting directors who prefer this lighting style. The cash flow details, in thousands of dollars, for these enhancements are shown in the chart below. MARR is 10%/year. Based on a future worth analysis, which alternative (if any) should be implemented?
14. Stephanie, the supply chain analyst of Nestle is asked to present an expansion plan for thecompany. The plan is either to construct a plant, open a distribution center, or do nothing. Fromthe plant construction, the company will gain 80,000Php if the market turns favorable, loss of10,000 if average, and loss of 50,000 if unfavorable. From opening a distribution center, thecompany will gain 40,000Php if favorable, gain 20,000Php if average, and loss of 30,000Php ifunfavorable. And if the decision is do nothing, the company will gain nothing regardless of themarket turnout. Then, he was able to determine further the probability of occurrence of eachtype of market. The probability of occurrence is 60%, 25%, and 40%, respectively. He also foundout that he can buy the information on what will really happen to the market for 2,000Php.a. What should be the analyst’s decision?b. How much gain or loss will he expect for the company?c. Should he buy the perfect information? Why or why not?d.…
James Lawson's Bed and Breakfast, in a small historicMississippi town, must decide how to subdivide (remodel) the largeold home that will become its inn . There are three alternatives:Option A would modernize all baths and combine rooms, leavingthe inn with four suites, each suitable for two to four adults.Option B would modernize only the second floor; the results wouldbe six suites, four for two to four adults, two for two adults only.Option C (the status quo option) leaves all walls intact. In this case,there are eight rooms available, but only two are suitable for fouradults, and four rooms will not have private baths. The details ofprofit and demand patterns that will accompany each option are: Which option has the highest expected monetary value?
During a major expansion in 2004, Douwalla’s Import Company developed a new processing line for which the delivered equipment cost was $1.75 million. This year, the board of directors decided to expand into new markets and expects to build the current version of the same line. Estimate the cost if the following factors are applicable: construction cost factor is 0.20, installation cost factor is 0.50, indirect cost factor applied against equipment is 0.25, and the total plant cost index has risen from 2509 to 3713 over the years.
Mark has just been fired as the university bookstore manager for setting prices too low (only 20 percentabove suggested retail). He is considering opening a competing bookstore near the campus, and he hasbegun an analysis of the situation. There are two possible sites under consideration. One is relativelysmall while the other is large. If he opens at Site 1 and demand is good, he will generate a profit of$50,000. If demand is low, he will lose $10,000. If he opens at Site 2 and demand is high he willgenerate a profit of $80,000, but he will lose $30,000 if demand is low. He also has decided that he willopen at one of these sites. He believes that there is a 60 percent chance that demand will be high. Heassigns the following utilities to the different profits:U(50,000) = 0.72 U(-10,000) = 0.22U(80,000) = 1 U(-30,000) = 0Using expected utility theory, what should Mark do?