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    Decision Tree Tutorial

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    Shilongo Olivia
    The company is considering developing a new product with a 40% chance of success and 60% chance of failure. Developing the product costs $200,000. If successful, the company must choose to build a large or small manufacturing plant. There is a 75% chance of high demand and 25% chance of low demand. A large plant has a higher expected value under high demand but lower under low demand, while a small plant has a consistent expected value.

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    Decision Tree Tutorial

    Uploaded by

    Shilongo Olivia
    18 views1 page
    The company is considering developing a new product with a 40% chance of success and 60% chance of failure. Developing the product costs $200,000. If successful, the company must choose to build a large or small manufacturing plant. There is a 75% chance of high demand and 25% chance of low demand. A large plant has a higher expected value under high demand but lower under low demand, while a small plant has a consistent expected value.

    Original Description:

    Management Accounting 310 tutorial

    Original Title

    DECISION TREE TUTORIAL

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    The company is considering developing a new product with a 40% chance of success and 60% chance of failure. Developing the product costs $200,000. If successful, the company must choose to build a large or small manufacturing plant. There is a 75% chance of high demand and 25% chance of low demand. A large plant has a higher expected value under high demand but lower under low demand, while a small plant has a consistent expected value.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    18 views1 page

    Decision Tree Tutorial

    Uploaded by

    Shilongo Olivia
    The company is considering developing a new product with a 40% chance of success and 60% chance of failure. Developing the product costs $200,000. If successful, the company must choose to build a large or small manufacturing plant. There is a 75% chance of high demand and 25% chance of low demand. A large plant has a higher expected value under high demand but lower under low demand, while a small plant has a consistent expected value.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 1

    DECISION TREE TUTORIAL

    A company is considering whether to develop and market a particular product. There is 40% probability
    that the research and development department will come up with a viable product, and a 60%
    probability that the product will be scrapped. The cost of undertaking the research and development
    is N$200 000.

    If the product development is successful, the company will build a plant. The product demand is
    unknown, and the company has the choice of building a large or small plant. The expected demand
    and net present value is shown below:

    High demand Low demand


    Action Probability 75% Probability 25%
    Large plant N$1 600 000 N$400 000
    Small plant N$1 000 000 N$1 000 000

    Required:
    Advise the company on the most beneficial course of action using a decision tree

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