Mr. Smith is thinking about opening a bicycle shop in hishometown. He loves to take his own bike on 50-mile trips with hisfriends, but he believes that any small business should be startedonly if there is a good chance of making a profit. Jerry can open asmall shop, a large shop, or no shop at all.

Mr. Smith has done some analysis about the profitability of thebicycle shop. If Jerry builds the large bicycle shop, he will earn$60,000 if the market is favorable, but he will lose $40,000 if themarket is unfavorable. The small shop will return a $30,000 profitin a favorable market and a $10,000 loss in an unfavorable market.The chance of Favorable market and unfavorable market is 50-50.

His old marketing professor will charge him $5,000 for themarketing study. It is estimated that there is a 50% probabilitythat the survey will be favorable and 50% unfavorable study.

Furthermore, he has given the following probabilities:

Probability that the market will be favorable given a favorableoutcome from the study 90%

Probability that the market will be unfavorable given afavorable outcome from the study 10%

Probability that the market will be favorable given anunfavorable outcome from the study 12%

Probability that the market will be unfavorable given anunfavorable outcome from the study 88%

1. Compose the decision tree (25 pts)
2. What is Mr.Smith best option (show all your calculations andinterpret the results explain it) (65 pts)
3. What is the Expected Value of Sample of Information (EVSI) ?(10 pts)