Construct a decision tree for this problem.

Christina started a business of rehabbing old homes. He recently purchased a circa-1800 Victorian
mansion and converted it into a three-family residence. Recently, one of his tenants complained that the
refrigerator was not working properly. As Christina’s cash flow was not extensive, he was not excited
about purchasing a new refrigerator. He is considering two other options: purchase a used refrigerator or
repair the current unit. He can purchase a new one for $400, and it will easily last three years. If he repairs
the current one, he estimates a repair cost of $150, but he also believes that there is only a 30 percent
chance that it will last a full three years. If the repaired refrigerator does not last three years, he will have
to buy a new one ($400). If he buys a used refrigerator for $200, he estimates that there is a 60%
probability that it will last at least three years. If it breaks down, he will still have the option of repairing it
for $150 or buying a new one. If he repairs, there is a 30 percent change that it will last. If it doesn’t he
will have to buy a new one.

a. (5 points) Construct a decision tree for this problem.
b. (5 points) Identify the strategy that minimizes Christina’s expected cost for the next three
years.

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