Question: A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated




A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.40,0.35, and 0.25, respectively. A small facility is expected to earn an after-tax net present value of just $15,000 if demand is low. If demand is average, the small facility is expected to earn $35,000; it can be increased to medium size to earn a net present value of $70,000. If demand is high, the small facility is expected to earn $50,000 and can be expanded to medium size to earn $70,000 or to large size to earn $75,000. A medium-sized facility is expected to lose an estimated $50,000 if demand is low and earn $110,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $125,000; it can be expanded to a large size for a net payoff of $145,000. If a large facility is built and demand is high, earnings are expected to be $180,000. If demand is average for the large facility, the present value is expected to be $100,000; if demand is low, the facility is expected to lose $70,000. Choose the correct decision tree below. Note that each payoff is given in thousands ($000). A. B. If a large facility is built and demand is high, earnings are expected to be $180,000. If demand is average for the large facility, the present value is expected to be $100,000; if demand is low, the facility is expected to lose $70,000. Choose the correct decision tree below. Note that each payoff is given in thousands ($000). c. D. What should management do to achieve the highest expected payoff? The management should build a in order to achieve the highest expected payoff of $ (Enter your response as a whole number.)
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