A carpet and rug manufacturer in the manufacturing database is

A carpet and rug manufacturer in the manufacturing database is faced with the decision of making expenditures in the form of machinery in anticipation of strong growth or not making the expenditures and losing market opportunity. Experts claim that there is about a 40% probability of having strong growth in the industry and a 60% probability of not having strong growth in the industry. If there is strong growth, the company will realize a payoff of $5,500,000 if the capital expenditure is made. Under strong growth, if the company does not make the capital expenditure, it will still realize a $750,000 payoff in new business, which it can handle with existing equipment. If there is not strong growth in the industry and the company has made the capital expenditure, the payoff will be −$2,000,000. If there is not strong growth and the capital expenditure has not been made, the company will receive a payoff of $500,000. Analyze this situation by using the decision analysis techniques presented in this chapter.

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