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 $7 million. If demand for new products is low, the company expects to receive $11 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects $14 million in discounted revenues using the small facility. The second option i to build a large factory at a cost of $12 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 $17 million. In either case, the probability of demand being high is 0.50, and the probability of it being low is 0.50. 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 "O" wherever required. Enter your answers in millions rounded to 1 decimal place.) Plans NPV Small facility million Do nothing million Large facility million b. The best decision to help Expando is to build the large facility. O to do nothing.
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 $7 million. If demand for new products is low, the company expects to receive $11 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects $14 million in discounted revenues using the small facility. The second option i to build a large factory at a cost of $12 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 $17 million. In either case, the probability of demand being high is 0.50, and the probability of it being low is 0.50. 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 "O" wherever required. Enter your answers in millions rounded to 1 decimal place.) Plans NPV Small facility million Do nothing million Large facility million b. The best decision to help Expando is to build the large facility. O to do nothing.
Essentials of Business Analytics (MindTap Course List)
2nd Edition
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Chapter15: Decision Analysis
Section: Chapter Questions
Problem 10P: Hemmingway, Inc. is considering a $5 million research and development (R&D) project. Profit...
Related questions
Question
100%
![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 $7 million. If demand for new
products is low, the company expects to receive $11 million in discounted revenues (present value of future revenues) with the small
facility. On the other hand, if demand is high, it expects $14 million in discounted revenues using the small facility. The second option is
to build a large factory at a cost of $12 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 $17 million. In either case, the
probability of demand being high is 0.50, and the probability of it being low is 0.50. 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 "O" wherever required. Enter your answers in
millions rounded to 1 decimal place.)
Plans
NPV
Small facility
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fec7ca5ac-d913-4f83-b702-3cb8fd792592%2Fd3ec2cc5-5d08-42c5-97d8-262af2a12cc0%2Fzzggozi_processed.png&w=3840&q=75)
Transcribed Image Text: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 $7 million. If demand for new
products is low, the company expects to receive $11 million in discounted revenues (present value of future revenues) with the small
facility. On the other hand, if demand is high, it expects $14 million in discounted revenues using the small facility. The second option is
to build a large factory at a cost of $12 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 $17 million. In either case, the
probability of demand being high is 0.50, and the probability of it being low is 0.50. 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 "O" wherever required. Enter your answers in
millions rounded to 1 decimal place.)
Plans
NPV
Small facility
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.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Essentials of Business Analytics (MindTap Course …](https://www.bartleby.com/isbn_cover_images/9781305627734/9781305627734_smallCoverImage.gif)
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Essentials of Business Analytics (MindTap Course …](https://www.bartleby.com/isbn_cover_images/9781305627734/9781305627734_smallCoverImage.gif)
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT