You are a landlord and one of your tenants complained that the refrigerator was not working properly. You plan to sell this property in three years, so you are only concerned with the least expensive solution that results in the refrigerator working for the next three years. To address this issue you can purchase a new refrigerator for $400 and it will last for 3 years. You can repair the current refrigerator for $150, but estimate there is only a 30% chance it will last a full 3 years. If the repaired refrigerator does not last a full 3 years, you will end up purchasing a new refrigerator, but it will cost you $500 if you wait. You can buy a used refrigerator for $200, and there is a 60% chance it will last for 3 years. If it breaks down within the three years, you estimate a 40% probability that you will repair the used refrigerator for $150: otherwise, you will end up purchasing a new refrigerator for $500. If the used refrigerator is repaired, there is only a 30% chance it will last the remainder of the 3 years. If the repaired used refrigerator breaks down within three years from today, you will end up purchasing a new refrigerator for $500.
a) Develop a Decision Tree.
b) What is your Optimal Decision and its Monetary Value?