Question: A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated



A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.40, 0.35, and 0.25, respectively. A small facility is expected to earn an after-tax net present value of just $14,000 if demand is low. If demand is average, the small facility is expected to earn $15,000; it can be increased to medium size to earn a net present value of $30,000. If demand is high, the small facility is expected to earn $25,000 and can be expanded to medium size to earn $50,000 or to large size to earn $100,000. A medium-sized facility is expected to lose an estimated $50,000 if demand is low and earn $120,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $125,000; it can be expanded to a large size for a net payoff of $145,000. If a large facility is built and demand is high, earnings are expected to be $160,000. If demand is average for the large facility, the present value is expected to be $80,000; if demand is low, the facility is expected to lose $70,000. Choose the correct decision tree below. Note that each payoff is given in thousands ($000). O A. OB. High 0.259160 High 0.405160 Expand to lrg Expand to Irg $145 $145 Avg 0.35 $80 Low 0.40 Large - $70 High 0.25 Med Avg 0.35 $120 Low 0.40 - $50 Small High 0.25 Do nothing Avg 0.35 $80 Low 0.25 $70 Large High 0.40 -2 Med Avg 0.35 $120 Low 0.25 $50 High 0.40 Small Do nothing $125 Expand to lrg $100 Expand to Irg $125 $100 Expand to med$50 Expand to med $50 Do nothing $25 Do nothing $25 Avg 0.35 Expand to med530 Expand to med$30 Low 0.40 $14 Do nothing Avg 0.35 Low 0.25 $14 $15 Do nothing $15 OC. O D. High 0.25 Avg 0.35 $80 Low 0.40 - $70 Expand to Irg Do nothing High 0.259160 $145 $125 Expand to Irg Large High 0.259160 Avg 0.35 $80 Low 0.40 Large - $70 High 0.25 Med Avg 0.35 $120 $145 Low 0.40 - $50 Med Avg 0.35 $120 Low 0.40 - $50 High 0.25 Small Avg 0.35 Expand to Irg $100 Expand to med550 High 0.25 Small Do nothing $125 Expand to Irg $100 Expand to me.550 Do nothing $25 Expand to meds 30 Do nothing $15 Do nothing $25 Expand to med$30 Avg 0.35 Low 0.40 $14 Do nothing Low 0.40 $14 $15 High 0.25 Small High 0.25 Small large facility Avg 0.35 Low 0.40 $14 Avg 0.35 Low 0.40 $14 Expand to med$50 Do nothing $25 Expand to med$30 Do nothing $15 medium facility small facility What should management do to a od payoff? The management should build a in order to achieve the highest expected payoff of $ (Enter your response as a whole number.)