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  • Exerxice Capacity Management

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    Firliani Sarah
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    This decision tree analyzes the expected value (EV) of pursuing either a large or small production line based on the probabilities of strong or weak market growth. For the large line, the EV is $100,000 if growth is strong and -$100,000 if weak. For the small line, the EV is $66,666 if growth is strong and $0 if weak. The optimal strategy is determined by starting at the right of the tree and choosing the decision with the highest EV at each decision node.

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    This decision tree analyzes the expected value (EV) of pursuing either a large or small production line based on the probabilities of strong or weak market growth. For the large line, the EV is $100,000 if growth is strong and -$100,000 if weak. For the small line, the EV is $66,666 if growth is strong and $0 if weak. The optimal strategy is determined by starting at the right of the tree and choosing the decision with the highest EV at each decision node.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    5 views4 pages

    Exerxice Capacity Management

    Uploaded by

    Firliani Sarah
    This decision tree analyzes the expected value (EV) of pursuing either a large or small production line based on the probabilities of strong or weak market growth. For the large line, the EV is $100,000 if growth is strong and -$100,000 if weak. For the small line, the EV is $66,666 if growth is strong and $0 if weak. The optimal strategy is determined by starting at the right of the tree and choosing the decision with the highest EV at each decision node.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    of 4

    Exhibit 5.

    4 - Decision Tree Analysis

    EV= $ 100,000.00 $200,000.00 Strong Growth


    Large Line 0.67

    -$100,000.00 Weak Growth


    0.33

    EV= $ 100,000.00
    Small Line Strong Growth 0.67

    EV= $ 66,666.67

    Weak Growth $0.00


    0.33

    Alternative Revenue
    Large scale, strong growth $600,000.00
    Large scale, weak growth $300,000.00
    Small line, strong growth, expand $500,000.00
    Small line, strong growth, do not expand $400,000.00
    Small line, weak growth $300,000.00

    When determining the optimal strategy for a decision tree, start at the right and work toward the le
    a time. If the node is a decision (square) node, chose the decision alternative with the best value
    the other alternatives. The payoff for the best decision alternative is used as you continue to the l
    is an uncertainty (circular) node, calculate the expected value for that node and use it in further ca
    Expand
    $50,000.00

    Do Nothing $100,000.00

    Cost Value
    $400,000.00 $200,000.00
    $400,000.00 -$100,000.00
    $450,000.00 $50,000.00
    $300,000.00 $100,000.00
    $300,000.00 $0.00

    ht and work toward the left one node at


    ative with the best value and cross off
    d as you continue to the left. If the node
    de and use it in further calculation.

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