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A manufacturing plant has reached full capacity. The company must build a second plant-either small or large-at a nearby location. The demand is likely to
A manufacturing plant has reached full capacity. The company must build a second plant-either small or large-at a nearby location. The demand is likely to be high or low. The probability of low demand is 0.3. If demand is low, the large plant has a present value of $5 million and the small plant, a present value of $8 million. If demand is high, the large plant pays off with a present value of $18 million, and the small plant with a present value of only $10 million However, the small plant can be expanded later if demand proves to be high for a present value of $14 million a. Draw a decision tree for this problem. b. What should management do to achieve the highest expected payoff
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