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Question 2: A Chemical company has to expand its production capacity to cater its growing local and international market. It has to decide between a large plant and a small plant to be built to address the increasing demand. This is all that must be decided now. But if the company chooses to build a small plant, and then finds demand high during the initial period for two years, it has to expand its plant further. In making decisions, company executives must take account of the probabilities, costs, and returns which appear likely. On the basis of the data now available to them, and assuming no important changes in the company's situation, perform the following, () Develop a decision tree analysis for the Chemical company for this potential investment, [15 marks] (ii) Determine the net expected monetary value EMV (revenue - cost), and decide which alternative should the company marks) Table 02a. Table Q2a Alternatives Probabilities High average demand 0.6 Large Plant (cost 30 million OMR) High initial demand (2 yrs), low succeeding demand (8 yrs) Payoff per year (OMRI year) #NA (for 10 yrs) 1,000,000 (first 2 yrs) 100.000 (succeeding 8 yrs) 100,000 (for 10 yrs) #N/A (first 2 yrs) Low average demand 0.3 average Small Plant (cost 1.3 million OMR) High demand average Low initial demand 0.3 400,000 (for 10 yrs) Table Q2b: Alternatives, Probabilities & Payoffs when building a Small plant with High initial average demand (succeeding 8 years) Alternatives after 2 years Payoff per year of having Small-Plant with for succeeding 8 Probabilities high initial average years demand (OMRI year Expand High average demand 0.86 700,000 (cost 2.2 million OMR) Low average demand 0.14 50.000 High average demand 0.86 300 000 Do not expand Low average demand 0.14 400.000