This problem is an extension ofthe text example for the economic evaluation of a product in its rapid development phase. The decision tree structure is given in Figure 17-12.

A technological breakthrough in an automated production process is now available that can be incorporated with new capital additions. The results would be a dramatic cost decrease of $30 per unit. On the other hand, it is estimated that plant investment costs would increase to $900,000 each for the 15,000-unit plant and $375,000 each for the 5000-unit plant.

The optimistic, expected, and pessimistic requirements schedules as well as the probability estimates remain the same as in the text example. The internal rate of return is 15 percent.