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

A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high with unknown probabilities.

A small facility is expected to earn an after-tax net present value of just $18,000 if demand is low. If demand is average, the small facility is expected to earn $75,000; if the demand is high the expected return is $125,000.

A medium-sized facility is expected to lose an estimated $25,000 if demand is low and earn $140,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $150,000.

If a large facility is built and demand is high, earnings are expected to be $220,000. If demand is average for the large facility, the present value is expected to be $125,000; if demand is low, the facility is expected to lose $60,000.A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high with unknown probabilities.

a.) Develop the payoff table.

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