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An investor is considering placing a $10,000 refundable deposit to reserve a franchise opportunity for a...

An investor is considering placing a $10,000 refundable deposit to reserve a franchise opportunity for a Chik-Fil-B in a new area for one year. There are two areas of uncertainty associated with the sequential decision situation: whether or not another franchise in a nearby area will also develop a retail store in the same area and whether this area will develop into a large or small market. The estimate that the other franchise will open a store in the same area is 50% – 50%. After this decision is known, there is potential gain of $15,000 with a 40% chance in a large and competing market and the loss is -$10,000 with a 60% in a small and competing market. There is a potential gain of $30,000 with a 40% in a large and non-competing market and the gain of $10,000 with a 60% in a small and non-competing market.

You will construct a decision tree analysis and provide the Expected Payout (EP).

math   Statistics-And-Probability   
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