Elite Shipping Inc., a third-party logistics provider, in Chennai, India, is planning to build a new warehouse to accommodate the increasing demand for its warehousing services. Mr. Venkatesh, the CEO of the company, is not able to decide whether to build a small-, large-, or medium-size warehouse as future demand for the company’s warehousing services is uncertain. If a small warehouse is built and demand is low, the company will have a net payoff of $600,000. Nevertheless, if demand turns to be high, the company has the option of expanding the existing warehouse or leasing additional warehousing facility. Expansion will provide a net payoff of $700,000, while the leasing option will have a net payoff of $400,000. If a medium-sized facility is built and demand turns out to be low, then the company will make $300,000. On the other hand, if demand turns out to be high, the net payoff will be $1 million.

Building a large warehouse to begin with will have a net payoff of $3 million if demand is high. If demand turns out to be low, then by building a large warehouse, the company will incur a loss of $800,000. The probability of high demand is 60%. What decision should Venkatesh make? Analyze the problem using a decision tree.