The company want to develop business:

Alternative 1: to acquire another factory, which would invest $80,000;

Alternative 2: to upgrade the current assembly line, which would cost $50,000;

Alternative 3: to keep the current settings no change.

Also considers three possible market conditions in the near future:

High demand market: where the newly built factory can generate $120,000 revenue, and the upgrades can generate $80,000 revenue.

Low demand market: where the new factory can only generate $60,000 revenue, and the upgrades can generate $40,000 revenue.

No change in market demand: where the new factory can generate $85,000 revenue, and the upgrades can generate $60,000 revenue.

You are a new hire at the company, and the manager asks you to analyze the situations and make recommendations for decision-making. Assume the capacity would meet the market demand in all situations, with the same price at $10/unit and the same cost at $5/unit.

You are a new hire at the company, and the manager asks you to analyze the situations and make recommendations for decision-making. Assume the capacity would meet the market demand in all situations, with the same price at $10/unit and the same cost at $5/unit.

1. Formulate the problem for decision analysis. Show the decision alternatives and states of nature, and develop a payoff table with the outcomes (i.e., profit).

2. Considering this is a decision-making problem under uncertainty, apply the three strategies to analyze the problem and come up your recommendation for each strategy.

3. Assume that a recent market research report predicts the market conditions with 40% chance of high demand, 25% of low demand, and 35% of no change. Would you change your recommendations? Why?

4. Calculate EVPI

alternative 3: i.e., no new costs and no new revenue.