1. A building supply store is considering expanding its capacity to meet a growing demand for its products. The alternatives are to build a new store at a site nearby, expand the existing store, or do nothing. There is a 60% chance the economy will be stable, and a 20% chance of either an economic upturn or downturn. The following NPV estimates based on economic conditions have been provided: Build new store Expand old store Do nothing Market upturn (millions) $1.9 $1.5 $0.5 Stable market (millions) $0.3 $0.5 $0.0 Market downturn (millions) -$0.5 -$0.3 -$0.1 a. Set up a decision-tree for this problem b. What should the company do? 2. You can acquire an existing business for $2 million. You are uncertain about future demand. There is a 40% chance of high demand, in which case the present value of the business will be $3 million. There is a 25% chance of moderate demand, and the associated present value is $1.5 million. Finally, there is a 35% chance of low demand, in which case the present value is $1 million. Draw a decision tree for this problem. What is the expected net present value of the business? Should you invest? Explain. 1. A building supply store is considering expanding its capacity to meet a growing demand for its products. The alternatives are to build a new store at a site nearby, expand the existing store, or do nothing. There is a 60% chance the economy will be stable, and a 20% chance of either an economic upturn or downturn. The following NPV estimates based on economic conditions have been provided: Build new store Expand old store Do nothing Market upturn (millions) $1.9 $1.5 $0.5 Stable market (millions) $0.3 $0.5 $0.0 Market downturn (millions) -$0.5 -$0.3 -$0.1 a. Set up a decision-tree for this problem b. What should the company do? 2. You can acquire an existing business for $2 million. You are uncertain about future demand. There is a 40% chance of high demand, in which case the present value of the business will be $3 million. There is a 25% chance of moderate demand, and the associated present value is $1.5 million. Finally, there is a 35% chance of low demand, in which case the present value is $1 million. Draw a decision tree for this problem. What is the expected net present value of the business? Should you invest? Explain