PLEASE ANSWER QUESTIONS 1-3. I ALREADY KNOW EXPECTED VALUE, BUT I DONT UNDERSTAND THE DIFFERENCE BETWEEN EXPECTED VALUE AND NET VALUE. PLEASE PROVIDE ANSWERS

Expando, Inc., is considering the possibility of building an additional factory that would produce a new addition to its product line. The company is currently considering two options. The first is a small facility that it could build at a cost of $6 million. If demand for new products is low, the company expects to receive $10 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects $12 million in discounted revenues using the small facility. The second option is to build a large factory at a cost of $9 million. Were demand to be low, the company would expect $10 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $14 million. In either case, the probability of demand being high is 0.40, and the probability of it being low is 0.60. Not constructing a new factory would result in no additional revenue being generated because the current factories cannot produce these new products.

The following decision tree describes the problem to help Expando make the best decision.

1. Calculate the expected value (EV) of Node A and Node B.
2. Calculate the net value of the two options (building small factory vs. building large factory).
3. What is the best decision for Expando.

This was the answer I was given before, it does not answer my question. Please answer question 1-3 in order. I want to clearly see the expected value AND the net value of the two options.

EMV= sum of product of expected probability* payoff- cost

EMV for Build Small Factory=0.4*12+0.6*10-6

EMV for Build Small Factory=4.8 million

EMV for Build large factory==0.4*14+0.6*10-9

EMV for Build large factory=2.6 million

As we can see that EMV for Build large factory

So the best decision is to go for Build small factory

Build Small Factory Build Large Factory High growth P = .40 Low growth P = .60 Do Nothing, EV = $0 High growth P = .40 Low growth P = .60 $12.0 million $10.0 million $14.0 million $10.0 million