Example 3.

2 - Decision trees
Value
$765,000

Revenue
$975,000

Move Cost
$210,000

Weak Growth
0.45

$365,000

$575,000

$210,000

Strong Growth
0.55

$863,000

$950,000

$87,000

$413,000

$500,000

$87,000

$843,000

$930,000

$87,000

$850,000

$850,000

$0

$525,000

$525,000

$0

Strong Growth
0.55
Move

Hacker's Computer
Store
$703,750

Expand

$585,000

$660,500
Weak Growth
0.45
Expand
Strong Growth
0.55

Do Nothing

$703,750
Weak Growth
0.45

$850,000
Do Nothing

Exhibit 3.4 - Decision Tree Analysis

EV= $ 585,000.00

$ 765,000.00 Strong Growth

0.55
$ 365,000.00 Weak Growth

Move

0.45

EV= $ 660,500.00
Expand

$ 863,000.00 Strong Growth

0.55
$ 413,000.00 Weak Growth
0.45

Do Nothing

EV= $ 850,000.00
Strong Growth

0.55

EV= $ 703,750.00

Weak Growth

525,000.00

0.45
Alternative
Move to new location, strong growth
Move to new location, weak growth
Expand Store, strong growth
Expand Store, weak growth
Do nothing now, strong growth, expand next year
Do nothing now, strong growth, do not expand next year
Do nothing now, weak growth

Revenue
$975,000.00
$575,000.00
$950,000.00
$500,000.00
$930,000.00
$850,000.00
$525,000.00

Expand
$ 843,000.00

Do Nothing

Cost
$210,000.00
$210,000.00
$87,000.00
$87,000.00
$87,000.00
$0.00
$0.00

$ 850,000.00

Value
$765,000.00
$365,000.00
$863,000.00
$413,000.00
$843,000.00
$850,000.00
$525,000.00

Exhibit 3.5 - Decision Treee Analysis using NPV

EV= $ 310,612.69

$428,487.26 Strong Growth

0.55
$166,543.77 Weak Growth

Move

0.45

EV= $ 402,506.90
Expand

$535,115.79 Strong Growth

0.55
$240,429.37 Weak Growth
0.45
EV=

Do Nothing

$556,629.92
Strong Growth

0.55

EV= $ 460,856.83

Weak Growth

$343,800.83
0.45

Alternative
Move to new location, strong growth
Move to new location, weak growth
Expand Store, strong growth
Expand Store, weak growth
Do nothing now, strong growth, expand next year
Do nothing now, strong growth, do not expand next year
Do nothing now, weak growth

Revenue
$638,487.26
$376,543.77
$622,115.79
$327,429.37
$604,874.41
$556,629.92
$343,800.83

Expand
$529,874.41

Do Nothing

Cost
$210,000.00
$210,000.00
$87,000.00
$87,000.00
$75,000.00
$0.00
$0.00

$556,629.92

Value
$428,487.26
$166,543.77
$535,115.79
$240,429.37
$529,874.41
$556,629.92
$343,800.83