5. The Central Mountain Power Company is planning construction of a new plant to generate electricity four years hence and must decide now between a small, medium or large sized plant. The exact size needed is uncertain because future demands can only be estimated. Forecasters have estimated future demands and their likelihoods as follows: Level of Demand Probability High 0.25 Medium 0.55 Low 0.20 In the following, all future costs and earnings have been adjusted to their present worth: A. If a large plant is built and the demand is high, the plant's net present value (NPV) is estimated to be $180 million. If demand is medium, however, the NPV of a large plant will drop to $100 million. If demand is low, the NPV will be a loss of $20 million B. A medium sized plant will have an NPV of $120 million if demand is high or medium and a loss of $5 million if the demand is low. If demand is high, a medium sized plant can be enlarged at a cost of $40 million to generate an additional $80 million in earnings. C. The capacity of a small plant would limit NPV to $60 million regardless of demand. If demand is medium, a small plant can be enlarged a moderate amount at a cost of $20 million. Its NPV would then be $110 million less the cost of $20 million for the expansion. If demand is high, a small plant can be enlarged greatly in size at a cost of $80 million. Its NPV would then be $170 million less the cost of $80 million for the expansion. Alternatively, if the demand is high, a small plant can be enlarged a moderate amount to increase its NPV to $140 million less the cost of $40 million for the expansion