If a large facility is built and demand is high, earnings are expected to be

$180,000.

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

$40,000.

Part 2

Choose the correct decision tree below. Note that each payoff is given in thousands ($000).

A.

Expand to lrg

Do nothing

Expand to lrg

Expand to med

Do nothing

Expand to med

Do nothing

$180

$80

$40

$115

$100

$90

$25

$145

$80

$25

$30

$15

$11

Low 0.25

Avg 0.40

High 0.35

Low 0.25

Avg 0.40

High 0.35

Low 0.25

Avg 0.40

High 0.35

Large

Small

Med

1234

x y graph

B.

Expand to lrg

Do nothing

Expand to lrg

Expand to med

Do nothing

Expand to med

Do nothing

$180

$80

$40

$115

$100

$90

$25

$145

$80

$25

$30

$15

$11

Low 0.25

Avg 0.40

High 0.35

Low 0.25

Avg 0.40

High 0.35

Low 0.25

Avg 0.40

High 0.35

Large

Small

Med

1234

x y graphYour answer is correct.

C.

Expand to lrg

Do nothing

Expand to lrg

Expand to med

Do nothing

Expand to med

Do nothing

$180

$80

$40

$115

$100

$90

$25

$145

$80

$25

$30

$15

$11

Low 0.35

Avg 0.40

High 0.25

Low 0.35

Avg 0.40

High 0.25

Low 0.35

Avg 0.40

High 0.25

Large

Small

Med

1234

x y graph

D.

Expand to lrg

Do nothing

Expand to lrg

Expand to med

Do nothing

Expand to med

Do nothing

$180

$80

$40

$115

$100

$90

$25

$145

$80

$25

$30

$15

$11

Low 0.25

Avg 0.40

High 0.35

Low 0.25

Avg 0.40

High 0.35

Low 0.25

Avg 0.40

High 0.35

Large

Small

Med

1567234

x y graph

Part 3

What should management do to achieve the highest expected payoff?

The management should build a

in order to achieve the highest expected payoff of

$enter your response here.

(Enter your response as a whole number.)