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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

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

Algebra for College Students
Algebra for College Students
10th Edition
ISBN:9781285195780
Author:Jerome E. Kaufmann, Karen L. Schwitters
Publisher:Jerome E. Kaufmann, Karen L. Schwitters
Chapter12: Algebra Of Matrices
Section12.CR: Review Problem Set
Problem 37CR
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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?
Transcribed Image Text: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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