A Pacific Northwest Lumber Company Is Considering the Expansion of One

Essay

A Pacific Northwest lumber company is considering the expansion of one of its mills.The question is whether to do it now or wait one year and reconsider.If it expands now,the major factors are the state of the economy and the level of interest rates.The combination of these two factors results in five possible situations.If it does not expand now,only the state of the economy is important and three conditions characterize the possibilities.The following table summarizes the situation:
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a.Draw the decision tree for this problem.
b.What is the expected value for expanding?
c.What is the expected value for not expanding?
d.Based on expected value,what should the company's decision(s)be?
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