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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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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M91903734

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