Expando, Inc. is considering the possibility of building an additional factory that would produce a new addition to its
Posted: Sat Feb 19, 2022 3:06 pm
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 $6 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 $13 million in discounted revenues using the small
facility. The second option is to build a large factory at a cost
of $10 million. Were demand to be low, the company would expect $11
million in discounted revenues with the large plant. If demand is
high, the company estimates that the discounted revenues would be
$15 million. In either case, the probability of demand being high
is 0.60, and the probability of it being low is 0.40. 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.)
b. The best decision to help Expando
is
multiple choice
to build the small facility.
to do nothing.
to build the large facility.
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 $6 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 $13 million in discounted revenues using the small
facility. The second option is to build a large factory at a cost
of $10 million. Were demand to be low, the company would expect $11
million in discounted revenues with the large plant. If demand is
high, the company estimates that the discounted revenues would be
$15 million. In either case, the probability of demand being high
is 0.60, and the probability of it being low is 0.40. 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.)
b. The best decision to help Expando
is
multiple choice
to build the small facility.
to do nothing.
to build the large facility.