Question: A decision must be made on whether to construct a new plant, expand an existing plant, or do nothing. The uncertainty involves the market for

A decision must be made on whether to construct a new plant, expand an existing plant, or do nothing. The uncertainty involves the market for the company's product: it expands, it is stable, or it contracts. The following decision tree has been developed, but the EMVs and TRUE/FALSE values have been grayed out. Assuming that the company is an EMV maximizer, which of the following is true?

a. The best decision is to construct a new plant. Its EMV is more than $70,000.
b. The best decision is to expand the existing plant. It has an EMV of more than $65,000.
c. The best decision is to construct a new plant. However, the second-best decision is pretty close, with an EMV within $5,000 of the EMV for the best decision.
d. The worst decision is to do nothing. Its EMV is more than $70,000 lower than the EMV for each of the other two decisions.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related General Management Questions!