Posted: September 9th, 2015

Project Management Decision Tree.

Expando, Inc. is considering the possibility of building an additional factory that would produce a new addition to their product line. The company is currently considering two options. The first is a small facility that is could build at a cost of $6 million. If demand for the new product is low, the company expects to receive $10 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects $12 million in discounted revenues using the small facility. The second option is to build a large facility at the cost of $9 million. Were demand to be low, the company would expect $10 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $14 million. In either case, the probability of demand being high is .40, and the probability of it being low is .60. Not constructing the facility 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. Explain your decision.

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