2. The Delightful Lighting Co., a manufacturer of decorative lighting fixtures, is plan- ning to tear down its old, outdated factory and construct a new one. As part of this process, managers need to decide whether to build a large factory or a small one. If the demand for decorative lighting remains favorable, the large facility will most likely generate a net present worth (PW) of $14 million; the small facility about $9 million. The small facility could be expanded at a later date if demand remained high, resulting in a net PW of $12 million. But if demand decreases, the larger facil- ity will have a net PW of $6 million and the small facility will have a net PW of $7.5 million. The probability of favorable demand is 0.65; the probability of unfavorable demand is 0.35.

a. Draw the decision tree for this decision.

b. Decide what Delightful Lighting should do to achieve the highest EMV.