The expected demand this year is about 1.8 million units. Over the next three years the demand is expected to increase by 10% with a probability of 0.5 and decrease by 5% with a probability of 0.5. If demand is more than the capacity of the two plants then the remaining supplies are acquired from a competitor for $2/unit.
The company wants to increase the capacity of the Bangladesh plant by 500,000 units at a fixed cost of $1 million. The fixed cost will be incurred this year. Should They do it? Assume that the company uses a 10% discount rate.
This is a decision tree problem and need to know total profit for period 0.
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