Chapter 5:   Problem 5

Expected payoff of small facility = 4.8 million               ((.4*12+.6*10) - 6) = 4.8 mil.

Expected payoff of large facility = 2.6 million               ((.4*14+.6*10) - 9 = 2.6 mil.

Build Small Facility because it produces a higher payoff--Expected NPV of 4.8 mil.