Question 2:A PetroChemical Company in Muscat Oman is considering increasing its worldwide Polyethylene capacity. Polyethylene is a plastic common in the manufature of packagingmaterials, automobile components, kitchen utensils, etc. The following are the possible altematives that management is reviewing for this project:build a new grassroots facility expand an existing plant establish a joint venture with an overseas company.After some extensive studies, and initials designs, the estimated net present values of the payoff(net return) in millions(OMR) for the three alternatives, at three different scenariolevels of future polyehtylene demand, are as shown in Table Q2a. After a further market study was performed, the company developed some probability estimates for the marketoutcome shown in Table Q2b.) Develop a decision tree analysis and decide on what would be the preferred or best alternative.(i) Determine the expected value of perfect information EVPI. How is this interpreted?(i) After further discussions, management came up with the following modified situation:1.) If the grassroots alternative were selected, and the market demand were high, the company had an option to expand the capacity.In this case, the estimated payoff would be 125 million OMR instead of 100 million OMR.2.) If the joint venture altemative were selected, and the market demand were high, the company had an option to increase its percentageshare in the joint venture. In this case, the estimated payoff would be 65 Million OMR instead of 45 million OMR.Use decision trees to illustrate the preferred decision for management.(iv) What is the expected value of the perfect information for the modified situation preesnted in section (i)Table Q2a : Payoff in Million OMRLow marketHigh marketProject decisionStable market demanddemand-13demand100Grassroots35-205379ExpansionJoint venture104445Table Q2b: Probability in PercentHigh marketdemand43Low marketFuture MarketStable market demanddemandProbability (%)2037

Name: Question 2:A PetroChemical Company in Muscat Oman is considering incr
Uploaded: 2024-03-20T06:57:05.000Z
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Description: Question 2:A PetroChemical Company in Muscat Oman is considering increasing its worldwide Polyethylene capacity. Polyethylene is a plastic common in the manufature of packagingmaterials, automobile components, kitchen utensils, etc. The following ar