Question: A manufacturing company is considering two different production methods for a new product. The first method has a fixed cost of $500,000 and a variable

A manufacturing company is considering two different production methods for a new product. The first method has a fixed cost of $500,000 and a variable cost of $10 per unit. The second method has a fixed cost of $800,000 and a variable cost of $7 per unit. The company estimates that they will sell 50,000 units of the new product. However, there is a 20% chance that the product will not be successful, and they will only sell 20,000 units. Additionally, there is a 10% chance that there will be a supply chain disruption that will result in an additional cost of $100 per unit for the second method. The company's cost of capital is 6%. Which production method should the company choose?

Please provide a detailed analysis, including calculations and a recommendation.

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