Determine if it’s wise to invest $100M to build a new plant…
Determine if it’s wise to invest $100M to build a new plant or to instead invest only $40M to upgrade an existing plant. For each decision, the demand (which is the uncertainty) must be taken into consideration. Strong demand leads to $225M in revenue with the new plant but only $160M for the upgraded plant (due to capacity). For the new plant, if weak demand occurs, revenue would total 90M. To upgrade the plant, weak demand would generate 60M in revenue. There is a 60% chance for strong demand and a 40% chance for weak demand. Be sure to state your decision based on the information contained in this problem.