Brandon is considering expansion of a store. If he expands, the interest rate at which he borrows the money is the important factor. He is not sure what kind of interest rate will be obtained. If he does not expand, the only factor influencing the outcome is future economy. The following table summarizes the situation:                                                                         Probabilities          Payoff   Expand Large                        Favorable interest               .3             $60k                                 Neutral interest                   .5             $30k                                 Unfavorable interest           .2             ‑$70k                                 Expand Small                        Favorable interest               .3             $50k                                 Neutral interest                   .5             $30k                                 Unfavorable interest           .2             ‑$30k   Do not expand                      Economy up                          .3             $30k                                 Economy same                     .5             $20k                                 Economy down                    .2             $0 Draw the decision tree showing all nodes and expected values. Use square for decision node, and circle for chance node. What should he do?

Question
  1. Brandon is considering expansion of a store. If he expands, the interest rate at which he borrows the money is the important factor. He is not sure what kind of interest rate will be obtained. If he does not expand, the only factor influencing the outcome is future economy. The following table summarizes the situation:

                                                                        Probabilities          Payoff

 

Expand Large                        Favorable interest               .3             $60k

                                Neutral interest                   .5             $30k

                                Unfavorable interest           .2             ‑$70k

                               

Expand Small                        Favorable interest               .3             $50k

                                Neutral interest                   .5             $30k

                                Unfavorable interest           .2             ‑$30k

 

Do not expand                      Economy up                          .3             $30k

                                Economy same                     .5             $20k

                                Economy down                    .2             $0

Draw the decision tree showing all nodes and expected values. Use square for decision node, and circle for chance node. What should he do?

Expert Answer

Want to see the step-by-step answer?

See Answer

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

See Answer
*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.

Related Operations Management Q&A

Find answers to questions asked by student like you
Show more Q&A

Q: What is a weighted scoring method?

A: Step1: The definition of weighted scoring method is as follow:The weighted scoring method is a form ...

Q: How do I explain 'Observation' in a essay?

A: IntroductionObservation is very important while writing an essay. Observation is very important not ...

Q: you decide to estimate duration and standard deviation of a project using PERT method. the project h...

A: This is a PERT method using probabilistic time estimates. Assuming a beta distribution the expected ...

Q: Given the following historical data, what is the moving-average forecast for period 6 based on the l...

A: Calculation of moving average forecast for period 6 based on the last three periods:The formula for ...

Q: What is economic order quantity?

A: Define economic order quantity:Economic order quantity is the method that helps to determine the bes...

Q: Imagine that you are a hacker and have developed a Trojan horse program. What tactics might you use ...

A: Firstly Torjan horse is employed to enter a unsuspecting victim's laptop or system unobserved access...

Q: 1. Assuming you possessed the right technical skills for the job, would a position at KIEA be appeal...

A: Determine whether I possess the position in the company and the positives and negatives associated w...

Q: ProHaul specializes in trans-American shipments for businesses through the delivery of containers. ...

A: Calculating the value of break-even sales for the company. We have, The formula of break-even sales ...

Q: Provide two examples, one using a good and one using a service, of marketing mixes that attempt to f...

A: Maslow’s hierarchy of needs was developed by Abraham Maslow. The hierarchy have five categories. The...