44) A property owner is faced with three options (A, B, C) to choose from. (A) A large-scale investment (A) to improve her flats. This could produce a substantial pay-off in terms of increased revenue net of costs but will require an investment of RO 1,400,000. After extensive market research it is considered that there is a 40% chance that a pay-off of RO 2,500,000 will be obtained, but there is a 60% chance that it will be only RO 800,000. (B) A smaller scale project (B) to re-decorate her premises. At RO 500,000 this is less costly but will produce a lower pay-off. Research data suggests a 30% chance of a gain of RO 1,000,000 but a 70% chance of it being only RO 500,000. (C) Continuing the present operation without change (C). It will cost nothing, but neither will it produce any pay-off. Clients will be unhappy and it will become harder and harder to rent the flats out when they become free. Use decision tree approach to help the property owner make her decision. Draw a properly labelled decision tree, clearly indicating pay-offs for the activities that are indicated. According to results from the tree, which decision is optimal? Why? 7