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# A local supermarket is planning to expand its business. There are three possible options:

A local supermarket is planning to expand its business. There are three possible options:
•    • Option 1: set up a new store,
•    • Option 2: develop online shopping, or
•    • Option 3: expand the current store.
A consultant estimated that setting up a new store will cost \$600,000, developing online shopping will cost \$200,000 and expanding the current store will cost \$300,000. The potential revenues in the future 3 years together with the estimated probabilities are given in the Table below:
Option     Revenue (\$)     Probability (%)
Option 1     1,100,000     30
700,000     70
Option 2     700,000     20
500,000     60
400,000     20
Option 3     800,000     55
600,000     45
Use these data and the decision tree analysis technique to determine which of the options is preferable. Your solution should include a well-labelled decision tree, all relevant calculations, your decision and a clear justification of your decision. [NOTE: it is not necessary for the explanation to be lengthy, but it must be correct and easily understood.]
(10 marks)

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