Question: Full decision tree for this question and What decision should the management make in order to achieve the highest expected contribution? Decision Trees 8. A

Full decision tree for this question and

What decision should the management make in order to achieve the highest expected contribution? Full decision tree for this question and What

Decision Trees 8. A company is adding a new product line and must build a new plant. Demand will be either favourable or unfavourable, with probabilities of 0.6and 0.4 respectively. If a large plant is built and demand is favourable, the after-tax net present value of benefits is estimated at 1,520,000. If demand is unfavourable, the loss with the large plant will be 20,000. If a small plant is built and demand is unfavourable, the net present value is 760,000, after deducting the cost to build and equip the plant. If demand proves to be favourable, the company can maintain the small facility or expand it. Maintaining the small facility has a present value of 950,000, whilst expanding it has a present value of 570,000. a) Draw a decision tree for this problem. b) What decision should the management make in order to achieve the highest expected contribution

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