Abstract
A lumber company is considering an expansion of its facilities. The company believes it can sell lumber for $0.18/board foot. The tax rate for the company is 30 percent. The company has the following two opportunities:
- Build factory A with annual fixed costs of $20million and variable costs of $0.10/board foot. This factory has an annual capacity of 500 million board feet.
- Build factory B with annual fixed costs of $10million and variable costs of $0.12/board foot. This factory has an annual capacity of 300 million board feet.
