Calculate expected value at every node

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Reference no: EM131719960

A fast-food restaurant chain is considering a store expansion program. The most important factor to consider is next two year’s level of interest rate. It is estimated that there is a 30% chance that it goes up, a 50% chance that it stays same, and a 20% chance that it goes down. The strategies and corresponding expected payoffs (profit) are

Rate goes-up Rate stays same Rate goes-down

(30%) (50%) (20%)

Build 10 new places -$300,000 $50,000 $250,000

Build 5 new places -$150,000 $26,000 $80,000

Do nothing $70,000 0 $25,000

Draw a decision tree. Calculate expected value at every node. What should they do?

Reference no: EM131719960

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