Question
17)(6 points) A manufacturing company is considering expanding its production capacity to meet a growing demand for its product line of air fresheners.The alternatives are
17)(6 points) A manufacturing company is considering expanding its production capacity to meet a growing demand for its product line of air fresheners.The alternatives are to build a new plant, expand the old plant, or do nothing.The marketing department estimates a 35 percent probability of a market upturn, a 40 percent probability of a stable market, and a 25 percent probability of a market downturn.Georgia Swain, the firm's capital appropriations analyst, estimates the following annual returns for these alternatives: Market Stable Market Upturn Market Downturn Build new plant $690,000 ($130,000) ($150,000) Expand old plant 490,000 -45,000 -65,000 Do nothing 50,000 0 -20,000 a) Use a decision tree analysis to analyze these decision alternatives. b) What should the company do? c) What returns will accrue to the company if your recommendation is followed?
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