Question 3: Decision tree and decision making  Assume you can invest in a business and the cost of that project is $ 3.7 million. And if you are not sure of the future order size. There is a 50% chance that the demand will be high and the current value of the company will be $ 4 million in this case. There is a 35% chance the demand is moderate, and the current value attached to it is $ 2.6 million. Finally, there is a 15% chance of lower demand, in which case the present value would be $ 1.5 million.

1. Draw a decision tree for this problem. What is the expected net present value of the project? Should you invest? explained. 2. Assume that you can expand this project by investing an additional 0.6 million dollars after you know what the real demand is in the future. This would bring the present value of the business to $ 4.1 million in high demand, $ 3.7 million in moderate demand, and $ 2 million in low demand. Draw a decision tree to reflect option scaling and evaluate alternatives. What is the net present value of the business if you are considering an expansion option? What is the value of an expansion option?