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Business, 01.04.2021 20:00 pokenerdz

) A European apparel manufacturer has production facilities in Italy and China to serve its European market, where annual demand is for 1.5 million units. Each facility has a capacity of 1 million units per year. With the current exchange rates, the production and distribution cost from Italy is 10 euro per unit, whereas the production and distribution cost from China is 7 euro. Over each of the next two years, exchange rates are expected to stay the same, but the demand could rise by 10 percent with a probability of 0.2 or drop by 5 percent with a probability of 0.8. An option being considered is to shut down 0.2 million units of capacity in Italy and move it to China at a one-time cost of 1 million euro. Assume no discount factor. What is the saving or loss by moving the capacity to China

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