Realoption Aircraft Manufacturing Company needs to accommodate additional demand for its small commercial aircraft, but the amount of the additional demand is uncertain. Realoption can build either a small new plant or a big new plant. If the additional demand is not significantly large, the small plant would be sufficient. However, if the additional demand is large, a small plant may not be able to meet all the demand, which implies that to that extent the company will be unable to realize profits. After observing the demand trend for a year, Realoption may choose to expand the small plant if necessary. However, if Realoption chooses to build a large new plant, high costs may result in loss if the demand is not large. On the other hand, a big plant will be better able to meet high levels of demand. Note that it is not possible to shrink the size of the plant.
Draw a decision tree diagram to analyze if Realoption should build a small or a big new plant (please do so in Word).
Research the internet. Select the business searching interface. Using each of the four profile/reports available (listed below), search for information sources on the aircraft industry that could help support your decision.
Comment on the various types of data that would help Realoption decide whether to build a large or small plant.
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