A leisure company owns a number of large health and fitness resorts, but one is suffering from declining sales and is predicted to make a loss in the next year. As a result management have identified a number of possible actions:

(1)Shut down the resort and sell off theassets

(2)Undertake a major upgrade to facilities costing $45m

(3)Undertake a minor upgrade to facilities costing $2m

The upgrades are predicted to have variable results and the probability of good results after a major upgrade is 08, whereas the probability of good results after a minor upgrade is 07.

The company is risk neutral and has prepared the following decision tree.

Shut down and sell$5.75m

Major upgrade - good results$11m

Major upgrade - poor results$7.5m

Minor upgrade - good results$9m

Minor upgrade - poor results$6m

Which decision should the company make?

A) Shutdownand sell

B) Undertake the minor upgrade

C) Undertake the major upgrade

D) Undertake the major upgrade if results aregood