Construct a decision tree to help expando

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Decision Tree for Capacity Planning

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 fornew 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 ishigh, it expects $12 million in discounted revenues using the small facility.

The secondoption is to build a large factory at a cost of $9 million. Were demand to be low, the companywould expect $10 million in discounted revenues with the large plant. If demand ishigh, the company estimates that the discounted revenues would be $14 million. In eithercase, the probability of demand being high is .40, and the probability of it being low is.60.

Not constructing a new factory would result in no additional revenue being generated because the current factories cannot produce these new products.

Construct a decision tree to help Expando make the best decision!!

Reference no: EM132269474

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