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? V FIGURE A.8Strong Product Demand (50%)Average ProductDemand (20%)$2,000,000· $1,200,000Property is Leased (20%)Property Is Not$400,000Weak ProductDemand (30%)Lease New FacilityLeased (80%)$100,0002Do not Lease New Facility$200,000Property is Leased (20% )Property Is Not$1,800,000Lease New FacilityStrong ProductDemand (50%)Average ProductWeak Product Demand (30%)Leased (80%)$1,200,0003Do not Lease New Facility $1,300,000Demand (20%)$900,000· $400,000Do Not ExpandFacilityFacilitypuadx3

Decision tree is graphical representation to all options available for decision with associated…

Answered: V FIGURE A.8 Strong Product Demand…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

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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?

V FIGURE A.8
Strong Product Demand (50%)
Average Product
Demand (20%)
$2,000,000
· $1,200,000
Property is Leased (20%)
Property Is Not
$400,000
Weak Product
Demand (30%)
Lease New Facility
Leased (80%)
$100,000
2
Do not Lease New Facility
$200,000
Property is Leased (20% )
Property Is Not
$1,800,000
Lease New Facility
Strong Product
Demand (50%)
Average Product
Weak Product Demand (30%)
Leased (80%)
$1,200,000
3
Do not Lease New Facility $1,300,000
Demand (20%)
$900,000
· $400,000
Do Not Expand
Facility
Facility
puadx3

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