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# Problem #5 , p 137 - PowerPoint PPT Presentation

Problem #5 , p 137. Expando, Inc. is considering the possibility of building an additional factory Small facility (\$6M cost) Low demand - \$10M High demand - \$12M Large facility (\$9M cost) Low demand - \$10M High demand - \$14M Probability of high demand is 0.40

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## PowerPoint Slideshow about ' Problem #5 , p 137' - jonah-mack

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• Expando, Inc. is considering the possibility of building an additional factory

• Small facility (\$6M cost)

• Low demand - \$10M

• High demand - \$12M

• Large facility (\$9M cost)

• Low demand - \$10M

• High demand - \$14M

• Probability of high demand is 0.40

• Probability of low demand is 0.60

• No construction  no additional revenue

High demand (0.40)

Build small factory

\$ 4.8M

Low demand (0.60)

Build small_low demand = \$4M

Expando, Inc.

High demand (0.40)

Build large_high demand = \$5M

Build large factory

\$ 2.6M

Low demand (0.60)

Build large_low demand = \$1M

• Computing for Expected Values associated w/current decision alternatives

• Sample computation: Build small factory

Value of high demand alternative (\$6M) x

High demand probability (0.4)

+

Value of low demand alternative (\$4M) x

Low demand probability (0.6)

= \$ 4.8 M