A company 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 $8 million. If demand for new products is low, the company expects to receive $8 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects $10 million in discounted revenues using the small facility. The second option is to build a large factory at a cost of $11 million. Were demand to be low, the company would expect $12 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $15 million. In either case, the probability of demand being high is 0.70, and the probability of it being low is 0.30. 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.)

b. The best decision to help Expando is

multiple choice

• to build the large facility.
• to build the small facility.
• to do nothing.