Unformatted text preview: new factory would result in no additional revenue being generated because the current factories cannot produce these new products. Construct a decision tree to help Expando make the best decision. A – Expected Net Present Value (NPV) = .40 X $12m + .60 X $10m - $6m = $4.8 million = $4.8m + $6m - $6m = $4.8 million = $10.8m - $6m = $4.8 million B – Expected NPV = $0 C – Expected NPV = .40 X $14m + .60 X $10m - $9m = $2.6 million = $5.6m + $6m - $9m = $2.6 million = $11.6m - $9m = $2.6 million From this it looks like the best alternative is to build the small facility. References: http://highered.mcgraw-hill.com/sites/dl/free/007726259x/416102/jacobs_ch03.pdf Operations & Supply Management, Jacobs, Chase & Aquilano, Chapter 5, Pages 130-132, & 136...
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- Summer '10
- Net Present Value, Mathematical finance, Factory