A Company Is Considering Expansion of Its Current Facility to Meet

Essay

A company is considering expansion of its current facility to meet increasing demand.A major expansion would cost $500,000, while a minor expansion would cost $200,000.If demand is high in the future, the major expansion would result in an additional profit of $800,000, but if demand is low, then there would be a loss of $500,000.If demand is high, the minor expansion will result in an increase in profits of $200,000, but if demand is low, then there is a loss of $100,000.The company has the option of not expanding.For what probability of a high demand will the company be indifferent between the two expansion alternatives?