Decisions in an ever changing economy
A home products discount store is considering expanding its capacity to meet a growing demand for its products. The alternatives are to build a new store, expand and refurbish the old store, or do nothing. Economists have projected the regional economic outlook: a 50% probability that the economy will remain unchanged (stable); a 20% probability of an economic upturn; and a 30% probability of an economic downturn.
The following estimates of annual returns have been prepared (in millions of dollars):
Market Downturn Stable Market Market Upturn
Build new store $ (0.8) $0.5 $2.1
Expand old store (0.4) 0.8 1.4
Do nothing (0.1) 0.2 0.5
Use a decision tree to analyze these decision alternatives.