b) A national Data Centre (DC) company is considering a business expansion program.

The major factor impacting the success of this expansion is the fluctuation of interest

rates. It is estimated that there is a 30 percent chance that interest rates will increase

by 1.5 percentage points, a 40 percent chance that they will remain the same, and a 30

percent chance that they will decrease by 1.5 percentage points. The alternatives they

are considering, and possible payoffs are shown in the following table:

	Rate up 1.5%	Rate Unchanged	Rate Down 1.5%
Build 2 new DCs ($,000)	-500	60	650
Build 1 new DC ($,000)	-200	10	200
Do nothing ($,000)	-50	0	50

(i) Explain FIVE (5) advantages and FIVE (5) disadvantages of decision tree

analysis. (5marks)

(ii) Using decision tree analysis, find the expected monetary value for building 2

new DCs. (2marks)

(iii) Using decision tree analysis, find the expected monetary value for building 1

new DC. (2marks)

(iv) Suggest the action and corresponding expected monetary value for this overall

decision tree problem. (1marks)