Growth Analysis:

In 2018 McCormick & Company, a flavor and seasoning company, reported record growth.  Through the first quarter year to date they are showing that they are on pace to exceed that growth in 2019.  CEO, Lawrence E. Kurzius, stated that there was a 60% chance that growth will increase in 2019 and a 40% chance that growth would drop dramatically.  This is this situation puts them in a position where they have to decide how will they handle the growing demand for their product if growth were to continue.  One executive suggested that they build a new plant in Kentucky where they could build a plant for $120M which is the cheapest option for building a new plant.  He stated that with a new plant McCormick could stand to make and additional $200M if growth remained high and 90M if growth dropped.  Another executive said that it didn’t make much since to spend $120M on a new plant when they could upgrade their Maryland plant for $50M.  She then pointed out that if growth remained high then they stood to make $120M and if growth dropped, they would make an additional $60M.  Kurtis then asked his Business Analyst to take a look at it and let him know the best course of action.

The analyst reported that the estimated monetary value of building a new plant would be $36M or .60($80M) + .40($-30M) and the EMV of upgrading would be $46M or .60($70M) + .40($10M).  Therefore, he said his recommendation would be to upgrade the existing plant.