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Spectrum Hair Salon is considering expanding its business, as it is experiencing a large growth. The question is whether it should expand with a bigger

Spectrum Hair Salon is considering expanding its business, as it is experiencing a large growth. The question is whether it should expand with a bigger facility than needed, hoping that demand will catch up, or with a small facility, knowing that it will need to reconsider expanding in three years. The management at Spectrum has estimated the following chances for demand:

the likelihood of demand being high is 0.70;
the likelihood of demand being low is 0.30.

Estimated profits for each alternative are as follows:

large expansion has an estimated profitability of either $102,000 or $70,000, depending on whether demand turns out to be high or low;
small expansion has a profitability of $52,000, assuming that demand is low;
small expansion with an occurrence of high demand would require considering whether to expand further. If the business expands at this point, the profitability is expected to be $93,000. If it does not expand further, the profitability is expected to be $60,000.

Solve the decision tree.

EVsmall expansion = $enter expected value for small expansions in dollars ,

EVlarge expansion = $enter expected value for large expansions in dollars

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