A Manufacturing company is considering expanding its production capacity to meet a growing demand for its product line of air fresheners. The alternatives are to build a new plant, expand the old plant, or do nothing. The marketing department estimates a 35 percent probability of a market upturn, a 40 percent probability of a stable market, and a 25 percent probability of a market downturn. Georgia Swain, the firm's capital appropriations analyst, estimates the following annual returns for these alternatives:

a)	Use a decision tree analysis to analyze these decision alternatives.
b)	What should the company do?
c)	What returns will accrue to the company if your recommendation is followed?

Transcribed Image Text:

Build new plant Expand old plant Do nothing Market Upturn $690,000 490,000 50,000 Stable Market ($130,000) -45,000 0 Market Downturn ($150,000) -65,000 -20,000 Build new plant Expand old plant Do nothing Market Upturn $690,000 490,000 50,000 Stable Market ($130,000) -45,000 0 Market Downturn ($150,000) -65,000 -20,000

Answer rating: 100% (QA)

a Let us do decision tree analysis for all the 3 options In decision tr... View the full answer