1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
natima [27]
3 years ago
10

1. Bart Simpson, 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 $6 million. If demand for new products 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 factory at a 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 0.40, and the probability of it being low is 0.60. Not constructing a 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 Bart Simpson make the best decision.
Business
1 answer:
garri49 [273]3 years ago
6 0

Answer:

Three cases are considered: First case is to construct a small factory, second is to construct a large factory and third is to do nothing.

Construct a Small Facility is the most suitable option from the business perspective which makes case 1 recommended.

Explanation:

Case 1 - Construct a small facility

Return = [P(High Demand) x Revenue in case of High Demand] + [P(Low Demand) x Revenue in case of Low Demand] - Cost of Setup

= [ 0.4 x 12 ] + [ 0.6 x 10 ] - 6 = $ 4.8 million

Case 2 - Construct a Large Facility

Return = [P(High Demand) x Revenue in case of High Demand] + [P(Low Demand) x Revenue in case of Low Demand] - Cost of Setup

= [0.4 x 14] + [0.6 x 10] - 9 = $ 2.6 million

Case 3 - Do Nothing

Return = 0  

You might be interested in
O'brien inc. has the following data: rrf = 5.00%; rpm = 6.00%; and b =+0.70. what is the firm's cost of equity from retained ear
algol13

The company's cost of equity is0.92 % of retained earnings according to the capm.

The cost of equity for a corporation is the amount that the market is willing to pay to own an asset and take on ownership risk. The two common methods for determining the cost of equity are the capital asset pricing model and dividend capitalization model. On the right side of the balance sheet, you can see a list of the company's debt and equity accounts. The cost of capital refers to the price a business must pay to finance its operations through debt, equity, or a mix of the two.

b = 0.70, rs = rRF + b(RPM), and rRF + b(RPM) =5.00% RPM6.00% were lent to us.

Learn more about cost of equity here

brainly.com/question/14041475

#SPJ4

7 0
2 years ago
If the interest rate at the bank for a savings account is 0.03%, how much money would you need to leave in the account for one y
Ira Lisetskai [31]
Pretty sure you would need $300
8 0
3 years ago
The main reason people save during their working years is: a. a preference toward matching income with spending over time. b. a
FrozenT [24]

Answer: The correct answer is "d. a preference toward a smooth consumption path over time.".

Explanation: The main reason people save during their working years is a preference toward a smooth consumption path over time since they prefer to consume what is just and necessary so that in the future, even if they are affected by different circumstances, they can continue to maintain the same standard of living and / or consumption.

6 0
3 years ago
Read 2 more answers
__________ specify future ends and __________ specify today's means.
MAVERICK [17]
Goals specify future ends and plans specify today's means.
7 0
3 years ago
List two types of cash flows an investor can expect to receive from an investment in stock. Explain the volatility of each of th
nlexa [21]
Transactions must be segregated into the three types of activities presented on the statement of cash flows: operating, investing, and financing.
5 0
3 years ago
Read 2 more answers
Other questions:
  • Emma is ready to open a new checking account and is trying to decide between three banks using the chart below: Bank R Bank S Ba
    6·2 answers
  • The Stewart Company has $2,014,500 in current assets and $785,655 in current liabilities. Its initial inventory level is $402,90
    14·1 answer
  • todd, a sales representative, is facing the challenge stressor of trying to close a sale on a major account. during the meeting
    6·1 answer
  • if you see something which doesn’t meet wendy's quality standards, _____________. tell the manager serve it, the customer won't
    6·1 answer
  • Pro Clean Company, a manufacturer of hand sanitizers, intends to produce 40,000 units in the third quarter and 35,000 units in t
    9·1 answer
  • NO LINKS OR ELSE YOU'LL BE REPORTED! Only answer if you're very good at drawing logos.
    15·1 answer
  • Franchising involves ______. Multiple choice question. professionally managed and centrally coordinated channels designed to ach
    9·1 answer
  • New York City is the most-visited city in the world. <br><br> A. True <br> B. False
    7·1 answer
  • What is TRUE about time as a factor in investing?
    5·1 answer
  • The group of people within an organization who make business buying decisions are best described as _______.
    13·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!