I just need question 3.

QUESTION 2. You can acquire an existing business for $2 million. You are uncertain about future demand. There is a 40% chance of high demand, in which case the present value of the business will be $3 million. There is a 25% chance of moderate demand, and the associated present value is $5 million. Finally, there is a 35% chance of low demand, in which case the present value is $1 million. Draw a decision tree for this problem. What is the expected net present value of the business? Should you invest? Explain.

3. Suppose that if you buy the business described in Question 2, you can expand the business by investing another $500,000 (total investment would be $2.5 million) after you learn the true future demand state. This would make the present value of the business $4 million in the highdemand state, $2.5 million in the moderate demand state, and $0 million in the low demand state. Draw a decision tree to reflect the option to expand. Evaluate the alternatives. What is the net present value of the business if you consider the option to expand? How valuable is the option to expand?