Mary’s Factory –With Options
A few days later she was told that if she expands, she can opt to either (a) expand the factory further if the economy is good which costs 1.5M, but will yield an additional $2M in profit when economy is good but only $1M when economy is bad, (b) abandon the project and sell the equipment she originally bought for $1.3M, or (c) do nothing.
(b) Draw a decision tree to show these three options for each possible outcome, and compute the NPV for the expansion.