Problem $5-8($Algo$)$

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 $\backslash (\backslash$$ $7\backslash )$ million. If demand for new products is low, the company expects to receive $\backslash (\backslash$$ $10\backslash )$ million in discounted revenues $($present value of future revenues$)$ with the small facility. On the other hand, if demand is high, it expects $\backslash (\backslash$$ $12\backslash )$ million in discounted revenues using the small facility. The second option is to build a large factory at a cost of $\backslash (\backslash$$ $12\backslash )$ million. Were demand to be low, the company would expect $\backslash (\backslash$$ $12\backslash )$ million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $\backslash (\backslash$$ $16\backslash )$ million. In either case, the probability of demand being high is $0\mathrm{.}50,$ and the probability of it being low is $0\mathrm{.}50.$ Not constructing a new factory would result in no additional revenue being generated because the current factories cannot produce these new products.

a$.$ Calculate the NPV for the following: $($Leave no cells blank $-$ be certain to enter $"0"$ wherever required. Enter your answers in millions rounded to $1$ decimal place.$)$

b$.$ The best decision to help Expando is

to do nothing.

to build the small facility.

to build the large facility.