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Expando, Inc. is considering the possibility of building an additional factory that would produce a new addition to its product line. Th company is
Expando, Inc. is considering the possibility of building an additional factory that would produce a new addition to its product line. Th company is currently considering two options. The first is a small facility that it could build at a cost of $8 million. If demand for new products is low, the company expects to receive $10 million in discounted revenues (present value of future revenues) with the smal facility. On the other hand, if demand is high, it expects $12 million in discounted revenues using the small facility. The second option to build a large factory at a cost of $11 million. Were demand to be low, the company would expect $12 million in discounted revenue with the large plant. If demand is high, the company estimates that the discounted revenues would be $16 million. In either case, the probability of demand being high is 0.30, and the probability of it being low is 0.70. Not constructing a new factory would result in nc additional revenue being generated because the current factories cannot produce these new products a. Calculate the NPV for the following: (Leave no cells blank- be certain to enter "O" wherever required. Enter your answers in millions rounded to 1 decimal place.) Plans Small facility NPV million Do nothing million Large facility million b. The best decision to help Expando is O to build the large facility O to do nothing. O to build the small facility.
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