Which decision should the company make? A. Shutdown and sell B. Undertake the major upgrade C. Undertake the minor upgrade D. Undertake the major upgrade if results are good

C 13 / 21 48.9% ACCROSS MANAGEMENT ACCOUNTINGH 33. Pujangga Resort & Spa 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 the assets 2) Undertake a major upgrade to facilities costing RM4.5m 3) Undertake a minor upgrade to facilities costing RM2m The upgrades are predicted to have variable results and the probability of good results after a major upgrade is 0.8, whereas the probability of good results after a minor upgrade is 0.7. The company is risk neutral and has prepared the following decision tree. Shut down and sell RM5.76m Good results Poor results Major RM1 Im RM7.5m upgrade Minor upgrade RM3m Good results Poor results RM8m Indicator Decision Outcome