Question: A fastfood restaurant chain is considering a store expansion program. The most important factor to consider is next 10 years economy. It is estimated that

A fastfood restaurant chain is considering a store expansion program. The most important factor to consider is next 10 years economy. It is estimated that there is a 50% chance that it goes up, a 30% chance that it stays same, and a 20% chance that it goes down. The strategies and corresponding expected payoffs (profit) are:

goes-up same goes-down

Build 10 new places $20M $10M -$10M

Build 5 new places $15M $8M -$2M

Do nothing $10M $4M $0

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

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