Engineering Economics

Complete solution.

Southern Hospital Supplies, a company that makes hospital grown, is considering the capacity expansion. Its alternatives are to do nothing, build a small plant, build a medium plant or build a large plant. The new facility would produce a new type of grown and currently the potential or marketability for this product is unknown. If a large plant is built and favorable market exists, a profit of $100,000 could be realized. An unfavorable market would yield a $90,000 loss. However, a medium plant would earn $60,000 profit with a favorable market. A $10,000 loss would result from an unfavorable market. A small plant, on the other hand, would return $40,000 with favorable market conditions and lose $5,000 in an unfavorable market. Of course, there are always the option of doing nothing. Recent market research indicates that there is 0.4 probability of a favorable market, which means that there is also 0.6 probability of an unfavorable market. With this information, the alternatives that will result in the highest expected monetary value (EMV) can be selected. make a decision tree and compute the EMV for each branch.