.) MJ Logistics has decided to build a new warehouse to to support its supply chain activities. They have the option of building either a large warehouse or a small one. Construction costs for the large facility are $15 million versus $5 million for the small facility. The present value of the after tax
profit (excluding construction costs) over the expected life of the warehouses depends on the volume of demand. In the large warehouse, if there is high demand, the
company will make $35 million, and if there is low demand, the company will make $20 million. In the small warehouse, if there is high demand, the company will
make $15 million, and if there is low demand, the company will make $ 9 million. The probability of high demand has been estimated to be 40% by the VP of Marketing
for MJ Logistics. This estimate holds true regardless of whether a large or small warehouse is built.