Scissors is a hair salon. John is an owner of Scissors salon. Presently the salon has 500 regular clients. Each client spends on average 1,000 PLN per year in the salon. Scissors salon offers different services like hair cutting, dyeing, permanent wave, extensions, keratin treatment, etc. John is planing to open a new salon. The new salon would be located in the same district as Scissors salon. This district is a place where many new apartments are built. The district is becoming more alive. Many yuppies start living there. Because of that John expects that there would be opened new restaurants, cafes and many other venues. We can also expect that new fitness clubs, dance schools and gyms would appear in this district. John predicts that new shops and services would be set up soon. He analysed financial position of Scissors, its surrounding and market and decided to open a new salon - Scissors 2. Before taking steps to open a new salon John looked closely at figures and possible changes he can introduce. He listed two alternative directions of changes taking into consideration next two 2 years. Direction 1 John does not open a new salon. He is still the owner of Scissors. He predicts that the number of clients raises to 600 persons in the first year and it remains the same in the second year. Each client would spend 1,000 PLN per year in the salon. Direction 2 Thanks to start running a new salon John can expect that the number of clients grows to 960(*) persons with 60% probability or 1.050(*) clients with 40% probability. At the same time John has to consider that Scissors 2 would be a new salon and prices of services would have to be lower than presently. John estimates that with 70% probability each client would spend on average 920 PLN per year and with 30% probability each client would spend on average 950 PLN per year. The capital cost of new investment is estimated on 600.000 PLN. Required 1. Calculate the expected value of two alternative activities (6 marks) 2. Choose the best of two directions considered by John (7 marks) 3. Discuss advantages and disadvantages of using expected value as a coefficient in decision making process (7 marks)