Problem Set Up
Abacus International is considering two alternative investments to build the next generation PC. Abacus’s marketing team anticipates rapid growth: expected baseline demand is taken to be 300,000, 600,000, and 900,000 in Years 1, 2, and 3, respectively. However, the company recognises that actual sales may be higher or may be lower.

The company has two mutually exclusive plans to produce 900,000 units:

Plan A
Build a single plant that could produce 900,000 units. Construction would cost $900 million. The company estimates that it will be able to sell each computer for approximately1 $2,000. It also estimates that the incremental manufacturing costs beyond the capital cost of the plant are expected to be approximately1 $1,280 per computer. The salvage value at the end of Year 3 is 0.

Plan B
Build three small 300,000 unit plants, one each year, in an effort to match expected annual demand. The capital expenditure for each small plant is $300 million. The small plant has a unit manufacturing cost of approximately1 $1,500 per computer. This plan gives the company the flexibility not to build successive plants if the demand falls short in the first or second year. The salvage value at the end of Year 3 is approximately1 $300 million.
Note that both plans have drawbacks:

Plan A involves a large amount of excess capacity in the first two years until market demand grows; in addition, there is always a chance that demand falls short of expectations. Variability in demand for a given year can be large. Variability of demand will be discussed in Step 2.

Plan B is less efficient. Also, if the demand grows faster than expected, Abacus will not have the capacity to meet and take advantage of it.
Question 1
Undertake the calculations in the following 3 Steps. Devise a way to present clearly and simply the results of your calculations. In addition, devise a way to present clearly the calculation methods you used.

Step 1
Based on the forecasted baseline demand expectation without variability, find the NPV for Plan A. In addition, find the NPV for Plan B with an inflexible expansion plan (ie, build one small plant each year regardless of market demand). Based on this first analysis, which plan is better?

Step 2
Now consider the effect of uncertain market demand. Fluctuations about the baseline demand are possible, with enumerable possibilities. For simplicity, only three possibilities of future demand are considered: higher demand than baseline for all 3 years; baseline demand for all 3 years; and lower demand than baseline for all 3 years2. Calculate the maximum, minimum and expected NPVs for both plans. (Assume again, as in Step 1, that for Plan B, a small plant is built each year.)
Based on your calculations for this Step, do you recommend Plan A or Plan B?

Step 3
Embed flexibility into Plan B; that is, give Abacus the opportunity to decide not to construct one or two smaller plants. Use this decision rule: at the end of Year 1 (Year 2), another small plant is built only if the demand in Year 1 (Year 2) equalled or exceeded capacity.
Calculate the revised maximum, minimum and expected NPVs for Plant B.
Based on your calculations for this Step, do you recommend Plan A or Plan B?

         相关参数如下：

	Plan A	Plan B
Discount Rate	0.091	0.081
Selling price per computer	1990	1990
Unit manufacturing cost per	1300	1520
Salvage value	0	295m
Baseline demand (3 yrs)	(k=1) 300,000 600,000 900,000
High Demand (apply this formula to each year of  baseline demand)	(k=1.22) 366,000 732,000, 1,098,000
Low Demand (apply this formula to each year of  baseline demand)	(k=0.78) 234,000 468,000 702,000
Probability of Baseline Demand	0.46
Probability of High Demand	0.34
Probability of Low Demand	0.20

如果哪位同学有兴趣协助我完成呢，我十分感谢的哈~~~我会在接下来的1~2个帖子中把我目前自己构思，和同学商讨的贴出来，仅供大家参考。