A Manufacturing Company Is Considering Expanding Its Production Capacity to Meet

question 13

Essay

A manufacturing company is considering expanding its production capacity to meet a growing demand for its product line of air fresheners.The alternatives are to build a new plant,expand the old plant,or do nothing.The marketing department estimates a 35 percent probability of a market upturn,a 40 percent probability of a stable market,and a 25 percent probability of a market downturn.Georgia Swain,the firm's capital appropriations analyst,estimates the following annual returns for these alternatives: $$\begin{array} { l c c c } \hline \hline& \text { Market } & \text { Stable } & \text { Market } \\& \underline { \text { Upturn } } & \underline { \text { Market } } & \underline { \text { Downturn } } \\\text { Build new plant } & \$ 690,000 & \$ ( 130,000 ) & \$ ( 150,000 ) \\\text { Expand old plant } & 490,000 & ( 45,000 ) & ( 65,000 ) \\\text { Do nothing } & 50,000 & 0 & ( 20,000 ) \\\hline \hline\end{array}$$
a. Use a decision tree analysis to analyze these decision alternatives.
b. What should the company do?
c. What returns will accrue to the company if your recommendation is followed?

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Definitions:

Voice Mechanism

A method through which employees can express concerns, offer suggestions, or provide feedback within an organization to improve conditions or address issues.

Exit Mechanism

Strategies or processes that allow investors or business owners to withdraw from an investment or business operation, often seen in the context of startups or financial markets.

Blacklisting

The practice of compiling lists of people or entities to be denied a particular privilege, service, or recognition, often used in labor disputes to exclude workers.

Strikes

Work stoppages initiated by employees to protest against labor conditions, policies of their employers, or to demand higher wages and benefits.