The owner of Pearl Automotive Dealers is trying to decide whether to expand his current facility. If he expands and customer demand turns weak, there is a chance he could lease part of his newly constructed facility to another dealer. If he doesn't expand and strong demand occurs, he could attempt to lease another facility across town. Analyze the decision tree in Figure A8. What is the best set of decisions and the expected payoff?

Transcribed Image Text:

FIGURE A.8 $2,000,000 $1,200,000 $400,000 9 Property is Not Weak Product2 Demand (30%) Lease New Facility $100,000 Leased(80%) Do not Lease New Facility $200,000 90 PProperty Is Not Lease New Facility Strong Product Demand (50%) Leased(80%)-$1,200,000 Do not Lease New Faility $1,300,000 Average Product Demand(20%) $400,000