Fish Taco Company (Exercise 14.55) is planning to open a new store that might be affected by the entry of MacBurger into the same market area. FTC could invest in the new store now by buying and improving property. FTC analysts believe there is a 40 percent chance that MacBurger will enter the market.

They have prepared the following NPV estimates:

Decision and Competitor’s Action NPV Estimate INVESL OWS WIthOURamalOn COMPCTILON mess tuna nasteeesee vecnecsaarn cetasae e te $ 15,063 INVESEMOWAWithaImajOme OMMCltOn an ma resctm aa tenes sere ee een eearee (28,058)

Invest now, with a major competitor, terminate after one year............00 (15,556)

Required

a. Prepare a decision tree of this investment alternative similar to the one in Exhibit 14-16.

b. Compute the expected NPV of the decision to invest now.