Question: A firm must decide whether to construct a small, medium, or large stamping plant. A consultant s report indicates a . 2 0 probability that
A firm must decide whether to construct a small, medium, or large stamping plant. A consultants report indicates a probability that demand will be low and an probability that demand will be high.
If the firm builds a small facility and demand turns out to be low, the net present value will be $ million. If demand turns out to be high, the firm can either subcontract and realize the net present value of $ million or expand greatly for a net present value of $ million.
The firm could build a mediumsize facility as a hedge: If demand turns out to be low, its net present value is estimated at $ million; if demand turns out to be high, the firm could do nothing and realize a net present value of $ million, or it could expand and realize a net present value of $ million.
If the firm builds a large facility and demand is low, the net present value will be $ million, whereas high demand will result in a net present value of $ million.
b What is the maximin alternative? Negative amount should be indicated by a minus sign.
c Compute the EVPI. Round your answer to decimal place.
d Perform sensitivity analysis on P highRound your Intercept and Slope answers to nearest whole number and EV answer to decimal places. Negative amount should be indicated by a minus sign.
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