Question
Airfresh Sdn. Bhd., a manufacturer of air fresheners, is considering to expand its production capacity to meet a growing demand. The alternatives are to
Airfresh Sdn. Bhd., a manufacturer of air fresheners, is considering to expand its production capacity to meet a growing demand. The alternatives are to build a new plant, expand the old plant, or do nothing. The marketing department estimates a 35% probability of a market upturn, a 40% probability of a stable market, and a 25% probability of a market downturn. En. Hafizee Ramly, the firm's capital appropriations analyst, estimates the following annual returns for these alternatives: Build new plant Expand old plant Do nothing Market Upturn (RM) Stable Market (RM) Market Downturn (RM) 690,000 (130,000) (150,000) 490,000 (45,000) 50,000 0 (65,000) (20,000) (a) Construct a decision tree to analyse these decision alternatives. (b) Propose to the top management what should the company do. Justify your recommendation. (c) Report the returns that will accrue to the company if your recommendation is followed. [14 marks] [5 marks] [6 marks]
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