MBA Industries Ltd. must decide whether to build a large or small plant to produce a new product which is expected a market life of 10 yrs. A large plant will cost Shs. 28,000,000 while a small plant will cost only Shs. 14,000,000.The company’s best estimate of the distribution of sales over the 10yrs period is:High demand with probability = 0.5,Moderate demand = 0.3,Low demand with probability = 0.2.Cost –Volume profit analysis done by MBA Industries Ltd management indicates these conditional outcomes under the various combinations of plant size and market size.
a) A large plant with high demand wd yield 10 m/= annually .
b) A large plant with moderate demand 6,000,000/= annually in profits.
c) A large plant with low demand would lose 2,000,000/= annually because of production inefficiencies.
d) A small high demand would yield only 2,500,000/= annually
e) A small plant with moderate demand would yield 4,500,000/=
f) A small plant with low demand yield 5,500,000/= annually
What should MBA mgt do