Anbspregional fast-food restaurant is considering an


A regional fast-food restaurant is considering an expansion program. The major factor influencing the success of such a program is the future level of interest rates. It is estimated that there is a 40 percent chance that interest rates will increase by 3 percentage points, a 35 percent chance that they will remain the same, and a 25 percent chance that they will decrease by 3 percentage points. The alternatives they are considering and possible payoffs are shown in the following table:

                                                           Rates                 Rates                   Rates

                                                       Increase           No Change           Decrease

Build 50 new places                    -$100,000         +$150,000          +$250,000

Build 25 new places                     -$80,000           +$100,000         +$180,000

Do Nothing                                     -$50,000            +$50,000         +$125,000

Using decision tree analysis, calculate the expected value of each alternative, and decide which would be the best to follow. 

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