A fastfood restaurant chain is considering a store expansion program. The most important factor to consider is next two years level of interest rate. It is estimated that there is a 70% chance that it goes up, a 20% chance that it stays same, and a 10% chance that it goes down. The strategies and corresponding expected payoffs (profit) are:

Draw a decision tree. Calculate expected value at every node. What should they do?

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Rate goes-up Rate stays same Rate goes-down Build 10 new places Build 5 new places Do nothing -$200k -$150k $Ok $200k $100k $50k $600k $200k $100k