What should management do to achieve the highest expected payoff?

The management should build a

in order to achieve the highest expected payoff of

$nothing.

A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.40, 0.35, and 0.25, respectively. A small facility is expected to earn an after-tax net present value of just $13,000 if demand is low. If demand is average, the small facility is expected to earn $15,000; it can be increased to medium size to earn a net present value of $60,000. If demand is high, the small facility is expected to earn $25,000 and can be expanded to medium size to earn $60,000 or to large size to earn $75,000. A medium-sized facility is expected to lose an estimated $50,000 if demand is low and earn $100,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $150,000, it can be expanded to a large size for a net payoff of $155,000 If a large facility is built and demand is high, earnings are expected to be $170,000. If demand is average for the large facility, the present value is expected to be $100,000; if demand is low, the facility is expected to lose $70,000. Choose the correct decision tree below. Note that each payoff is given in thousands ($000). O A. OB. Q Expand to ing Do nothing $155 $150 Expand to ling Large Large $155 High 0.25 Avg 0.35 Low 0.40 $100 - $70 High 0.25 Avg 0.35 Low 0.40 $100 - $50 High 0.25 High 0.40 $170 Avg 0.35 $100 Low 0.25 $70 High 0.40 Avg 0.35 $100 Low 0.25 $50 High 0.40 Med $170 Med Do nothing $150 Expand to Irg Expand to lng $75 Expand to med 560 $75 Small Expand to med 560 Do nothing Small Avg 0.35 Low 0.40 Do nothing $25 Expand to med $60 Do nothing $15 Avg 0.35 Low 0.25 $25 Expand to med $60 Do nothing $15 $13 $13 OC. OD. Q High 0.25 $170 Expand to Irg Expand to lrg $155 $155 High 0.25 $170 Avg 0.35 $100 Low 0.40 - $70 Large High 0.25 Med Avg 0.35 $100 Low 0.40 - $50 High 0.25 Small Avg 0.35 $100 Low 0.40 - $70 Large High 0.25 Med Avg 0.35 Low 0.40 $100 - $50 High 0.25 Do nothing $150 Do nothing $150 Expand to Irg $75 Expand to med $60 Do nothing $25 Expand to lrg $75 Expand to me $60 Small Avg 0.35 Expand to med $60 Avg 0.35 Do nothing $25 Expand to med $60 Click to select your answer(s). A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.40, 0.35, and 0.25, respectively. A small facility is expected to earn an after-tax net present value of just $13,000 if demand is low. If demand is average, the small facility is expected to earn $15,000; it can be increased to medium size to earn a net present value of $60,000. If demand is high, the small facility is expected to earn $25,000 and can be expanded to medium size to earn $60,000 or to large size to earn $75,000. A medium-sized facility is expected to lose an estimated $50,000 if demand is low and earn $100,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $150,000, it can be expanded to a large size for a net payoff of $155,000 If a large facility is built and demand is high, earnings are expected to be $170,000. If demand is average for the large facility, the present value is expected to be $100,000; if demand is low, the facility is expected to lose $70,000. Choose the correct decision tree below. Note that each payoff is given in thousands ($000). O A. OB. Q Expand to ing Do nothing $155 $150 Expand to ling Large Large $155 High 0.25 Avg 0.35 Low 0.40 $100 - $70 High 0.25 Avg 0.35 Low 0.40 $100 - $50 High 0.25 High 0.40 $170 Avg 0.35 $100 Low 0.25 $70 High 0.40 Avg 0.35 $100 Low 0.25 $50 High 0.40 Med $170 Med Do nothing $150 Expand to Irg Expand to lng $75 Expand to med 560 $75 Small Expand to med 560 Do nothing Small Avg 0.35 Low 0.40 Do nothing $25 Expand to med $60 Do nothing $15 Avg 0.35 Low 0.25 $25 Expand to med $60 Do nothing $15 $13 $13 OC. OD. Q High 0.25 $170 Expand to Irg Expand to lrg $155 $155 High 0.25 $170 Avg 0.35 $100 Low 0.40 - $70 Large High 0.25 Med Avg 0.35 $100 Low 0.40 - $50 High 0.25 Small Avg 0.35 $100 Low 0.40 - $70 Large High 0.25 Med Avg 0.35 Low 0.40 $100 - $50 High 0.25 Do nothing $150 Do nothing $150 Expand to Irg $75 Expand to med $60 Do nothing $25 Expand to lrg $75 Expand to me $60 Small Avg 0.35 Expand to med $60 Avg 0.35 Do nothing $25 Expand to med $60 Click to select your answer(s)