Problem 1. Determine the net present value if the warehousing requirement for the next three years are obtained from the spot market (i.e., no lease).

Year	Spot market price
Year 1 (this year)	$1.20 per sq. ft. per year
Year 2	0.6 chance spot prices go up by 10% 0.4 chance spot prices go down by 10%
Year 3	0.6 chance spot prices go up by 10% 0.4 chance spot prices go down by 10%

Year	Demand (in thousands)
Year 1 (this year)	200 units
Year 2	0.6 chance it will go up by 20% 0.4 chance if will go down by 20%
Year 3	0.6 chance it will go up by 20% 0.4 chance if will go down by 20%

Revenue equals $1.22 per unit. Step 1. Construct the Decision Tree Step 2. Calculate the profit for each year Step 3. Calculate the NPV. (Hint: start with calculating the expected values in the third year).