Question
Your group is a decision-making team in your firm and is considering an estimated $10-million production expansion project. Estimates of key input factors are as
Your group is a decision-making team in your firm and is considering an estimated $10-million production expansion project. Estimates of key input factors are as following (all uniformly distributed): Market size: 100,000 to 350,000 tons Selling price: $375 to $575 Market growth rate: 0 to 6% per year Market share: 3% to 17% Total investment required: $7 million to $10.5 million Useful life of the new facility: 5 to 15 years Residual value of the facility: $3.5 million to $5 million Operating costs: $320 to $550 per ton Fixed costs: $250,000 to $375,000 per year Analyze the risks associated with this project. The results of the risk analysis include: estimated net profit/loss, possible minimum profit or maximum loss, possible maximum profit or minimum loss, and probability of making loss from this investment.
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