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A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the
A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.40, 0.35, and 0.25, respectively. A small facility is expected to earn an after-tax net present value of just $11,000 if demand is low. If demand is average, the small facility is expected to earn $15,000; it can be increased to medium size to earn a net present value of $50,000. If demand is high, the small facility is expected to earn $25,000 and can be expanded to medium size to earn $70,000 or to large size to earn $100,000. A medium-sized facility is expected to lose an estimated $75,000 if demand is low and earn $90,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $100,000; it can be expanded to a large size for a net payoff of $115,000. If a large facility is built and demand is high, earnings are expected to be $180,000. If demand is average for the large facility, the present value is expected to be $80,000; if demand is low, the facility is expected to lose $80,000. Which alternative is best according to each of the following decision criterion? (Enter your responses as whole numbers.) Criterion a. Maximin Decision Value of Return Small facility $ thousand b. Maximax Large facility $ thousand c. Minimax regret Medium facility thousand
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