Question: A firm must decide whether to construct a small, medium, or large stamping plant. A consultant's report indicates a 20 probability that demand will be



A firm must decide whether to construct a small, medium, or large stamping plant. A consultant's report indicates a 20 probability that demand will be low and an 80 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 $42 million. If demand turns out to be high, the firm can either subcontract and realize the net present value of $42 million or expand greatly for a net present value of $48 million The firm could build a medium-size facility as a hedge: If demand turns out to be low, its net present value is estimated at $22 million, if demand turns out to be high, the firm could do nothing and realize a net present value of $46 million, or it could expand and realize a net present value of $50 million If the firm builds a large facility and demand is low, the net present value will be -$20 million, whereas high demand will result in a net present value of $72 million b. What is the maximin alternative? (Negative amount should be indicated by a minus sign.) Alternative Criterion Maximin Net present value million c. Compute the EVPI. (Round your answer to 1 decimal place.) EVPI million d. Perform sensitivity analysis on P(high). (Round your Intercept and Slope answers to nearest whole number and EV answer to 2 decimal places. Negative amount should be indicated by a minus sign.) Intercept Slope 1 Small Medium Large X X + Small and large EV same at x =
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