Question
You own a cement manufacturing plant, and you plan to operate your business for another one more year (12 months). Currently, you have two options.
You own a cement manufacturing plant, and you plan to operate your business for another one more year (12 months). Currently, you have two options. Option A: To build a plant with RM 50 Million; or Option B: To invest RM 100 Million to upgrade the existing plant. If you build a plant, there will be a 60% of strong demand which lead to a revenue of RM 200 Million; and 40% of weak demand which lead to a revenue of RM 50 Million. However, if you upgrade the existing plant, there will be a 50% of strong demand which lead to a revenue of RM 240 Million; and a 50% of weak demand which lead to a revenue of RM 60 Million. By using a decision tree diagram, calculate the expected monetary value (EMV) for all options and explain the best option to choose from.
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