9. TriStar plans to open a new plant in Arkansas. The company can open a full-sized plant now or a small-sized plant that can be expanded 2 years later if high. demand conditions prevail. The time horizon for the decision problem is 10 years. TriStar estimates that the probabilities for high and low demands over the next 10 years is .75 and .25, respectively.

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The cost of immediate construction of a large plant is $5 million, and a small plant costs $1 million. Expansion of a small plant 2 years from now costs $4.2 million. The income from the operation over the next 10 years is given in the following table: Alternative Full-sized plant now Small-sized plant now Expanded plant in 2 years Estimated annual income (in $1000) High demand Low demand 1000 300 250 200 900 200 (a) Develop the associated decision tree, given that after 2 years TriStar has the options 10 expand or not expand the small plant. (b) Develop a construction strategy for TriStar over the next 10 years. (For simplicity, ignore the time value of money.)