Fish Taco Company (Exercises 14.55 & 14.57) is planning to open a new store that might be affected by the entry of MacBurger into the same market area. FTC could defer its decision to invest by one year to learn whether MacBurger will enter the market. 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 Defer the decision, without a Major COMPETitOL ........ccccccccceeeseeesseeeseeeeees $ 15,712 Defer the decision, with a MajOr COMPETILOL .........ccccccccccsssesseeseeesseeees eee (17,410)

Required

a. Prepare a decision tree of this investment alternative similar to the one in Exhibit 14-15.

b. Compute the expected NPV of the decision to defer the decision one year.