Problem 6 (25 marks) ABC Manufacturing Company has developed a unique new product and must now decide between two facility plans. The first alternative is to build a large new facility immediately. The second alternative is to build a small plant initially and to consider expanding it to a larger facility three years later if the market has proven favourable. Marketing has provided the following probability estimates for a 10-year plan: First 3-Year Demand Next 7-Year Demand Probability Unfavourable Unfavourable 0.2 Unfavourable Favorable 0.0 Favourable Favorable 0.7 Favorable Unfavourable 0.1 If the small plant is expanded, the probability of demands over the remaining seven years is 7/8 for favourable and 1/8 for unfavourable. The accounting department has provided the payoff for each outcome. Facility Plan 1 1 Demand Favorable, favourable Favorable, unfavourable Unfavourable, unfavourable Favorable, favourable Favorable, unfavourable Favorable, favourable Favorable, unfavourable Unfavourable, unfavourable 2-expanded 2-expanded 2-not expanded 2-not expanded 2-not expanded Payoff $5,000,000 2,500,000 1,000,000 4,000,000 100,000 1,500,000 500,000 300,000 Use these estimates to analyze ABC's facility decision. a. Perform a complete decision tree analysis. b. Recommend a strategy to ABC based on the above analysis. c. Determine what payoffs will result from your recommendation