A semiconductor company recognizes that there is shortage in chip supply and decides to build a new plant to meet the in
Posted: Tue Jul 05, 2022 1:35 pm
A semiconductor company recognizes that there is shortage inchip supply and decides to build a new plant to meet the increasingdemand. They have to to make a decision whether they should build abig plant or starts with a small one and expands the plant after 2years (if the demand is remaining high). The decision will be madebased on projected net cash flow generated in 10 years from variousprobable outcomes.
The assumptions:
Probably for High Average Demand: PH = 60%; forlow average demand : PL = 40%
The cash flow the company is able to make:
Big Plant: a. High Demand yield $ 800,000 annually, b. Low Demand yield $100,000 annually
Small Plant with initial high demand: $450,000/yr for year 1-2(2 years); after 2 years
The assumptions:
Probably for High Average Demand: PH = 60%; forlow average demand : PL = 40%
The cash flow the company is able to make:
Big Plant: a. High Demand yield $ 800,000 annually, b. Low Demand yield $100,000 annually
Small Plant with initial high demand: $450,000/yr for year 1-2(2 years); after 2 years