Jody of Jody’s Custom Tailoring is considering expanding her growing business. The question is whether to expand with a bigger facility than she needs or with a small facility, knowing that she will have to reconsider expanding in three years.

Jody has estimated the following chances for demand:

• The likelihood of demand being high is 0.55.

• The likelihood of demand being low is 0.45.

She has also estimated profits for each alternative:

• Large expansion has an estimated profitability of either $250,000 or $150,000, depending on whether demand turns out to be high or low.

• Small expansion has a profitability of $100,000, assuming that demand is low.

• Small expansion with an occurrence of high demand would require considering whether to expand further. If the business expands at that point, the profitability is expected to be $120,000. 

If it does not expand further, the profitability is expected to be $70,000.

Draw a decision tree and solve it. What should Jody’s Custom Tailoring do?