Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Expando, Inc., is considering the possibility of building an additional factory that would produce a new addition to its product line. The company is currently
Expando, Inc., is considering the possibility of building an additional factory that would produce a new addition to its product line. The company is currently considering two options. The first is a small facility that it could build at a cost of $5 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 small facility. On the other hand, if demand is high, it expects $12 million in discounted revenues using the small facility. The second option is to build a large factory at a cost of $0 million. Were demand to be low, the company would expect $13 million in discounted revenues 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 0.70, and the probability of it being low is 0.30. Not constructing a new factory would result in no 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 "0" wherever required. Enter your answers in millions rounded to 1 decimal place.) 6 Answer is complete but not entirely correct. ' Small facility 58 6.4 a million Do nothing SE a 9 million Large facility $ 0.0 6 million b. The best decision to help Expando is O to build the small facility. O to build the large facility. O to do nothing
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started