The market for golf putters is notoriously fickle. One year mallet head putters can be the hottest seller and the next it can be blade putters that are in demand. Tims Golf Company

(TGC) has a difficult decision to make. It can build a flexible plant that can produce either blade or mallet head putters. The plant would have a capacity of 150,000 putters a year and could produce either type but not both at the same time. In fact, it could be switched only once, one year from now, and the lifetime of the plant is ten years. Currently, there is a high demand for blade putters and TGC forecasts it will need to produce 150,000 for the next year. One year from now there is a 50-50 chance that the company will need to produce mallet head putters rather than blade putters. The company can also build a plant that could only produce blade putters. Both plants would have the same capacity. The profit for the flexible plant is \($10\) per blade putter and \($15\) per mallet putter. A fixed putter plant could produce only blade putters but could do so more efficiently. The profit from having a fixed plant produce blade putters is \($20\) per unit. The relevant discount rate is 12 percent.

In one year, it will be known if the demand for blade putters will continue for nine more years or it will drop by 50 percent.

The company has a choice. It can either invest \($1\) million in a fixed plant that will produce blade putters only or it can invest \($1.5\) million in a flexible plant capable of switching from blades to mallets. What should TGC’s decision be?