Reference no: EM132699125

A firm that plans to expand its production line must decide whether to build a small or large facility to produce the new products. If it builds a small facility and demand is low, the net present value after deducting for business costs will be $400,000. If demand is high, the firm can either maintain the small facility or expand it. The expansion would have a net present value of $450,000, and maintaining the small facility would have a net present value of $50,000.
If a large facility is built and demand is high, the estimated net present value is $800,000. If demand turns out to be low, the net present value would be -$10,000.
The probability that demand will be high is estimated to be .60, and the probability of low demand is estimated to be .40.

Problem 1: Compute the EVPI. (Omit the "tiny_mce_markerquot; sign in your response.)Expected Payoff under Certainty $________
Expected Payoff under Risk $_________
EVPI$______

Problem 2: Determine the range over each alternative would be best in terms of the value of p (demand low).