Problem 5 8 Algo Expando Inc is considering the possibility

Last updated: 8/27/2023

Problem 5 8 Algo Expando Inc is considering the possibility of building an additional factory that would produce a new addition to its product line The company is currently considering two options The first is a small facility that it could build at a cost of 7 million If demand for new products is low the company expects to receive 9 million in discounted revenues present value of future revenues with the small facility On the other hand if demand is high it expects 14 million in discounted revenues using the small facility The second option is to build a large factory at a cost of 8 million Were demand to be low the company would expect 9 million in discounted revenues with the large plant If demand is high the company estimates that the discounted revenues would be 15 million In either case the probability of demand being high is 0 30 and the probability of it being low is 0 70 Not constructing a new factory would result in no additional revenue being generated because the current factories cannot produce these new products a Calculate the NPV for the following Leave no cells blank be certain to enter 0 wherever required Enter your answers in millions rounded to 1 decimal place Plans Small facility Do nothing Large facility NPV million million million b The best decision to help Expando is O to do nothing O to build the large facility O to build the small facility