Financial advantage of the preferred option using

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financial advantage of the preferred option using only the facts provided in this problem
5. Supplement A, page 47, Problems, #24 Small or large plant. a. Decision Tree (payoffs are in millions of dollars) b. Working from right to left: Decision Node 2 1. The best choice is the “Expand” alternative ( $14 ), which becomes the expected payoff for Decision Node 2. Prune the “Do nothing” alternative. Decision Node 1
MBA 675 Online Winter 2015 Week 1 Homework Solutions Page 7 of 7 2. The alternative to build a small plant has an expected payoff of $12.2 million [or 0.70(14) + 0.30(8)]. 3. The alternative to build a large plant has an expected payoff of $14.1 million [or 0.70(18) + 0.30(5)]. 4. Thus the best choice is to build a large plant because it has a higher expected payoff ( $14.1 million) . Prune the small plant alternative. Conclusion: Build the large facility, with an expected payoff of $14.1 million . 6. Student Roster Discussion Forum

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