Draw a decision tree for each of the decision situation

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Reference no: EM132771095

Question - Instructions - Draw a decision tree for each of the following decision situation. Show each decision point and each chance event. Insert probability values and financial data. Use rollback or fold back method to analyze each situation.

1. A construction manager has to decide whether to prepare bid or not. It costs 10,000 to prepare the bid. If the bid is submitted, the probability of contract awarding is 50%. If the Company is awarded the contract, it may earn an income of 200,000 if it succeeds or pay a fine of 18,000 if it fails. The probability of success is 80%. Should the engineer prepare the bid?

2. The production analyst of Unilever is faced with deciding whether to purchase a patent to develop a new product or not. If the company purchases the patent, it should develop the product. The Selling price of the patent is 75,000. There are two ways of developing the product: The electronic system and the manual. It costs 60,000 to use the electronic system, and 40,000 to use the manual. The probability of success in the electronic system is 65% and that in the manual system is 75%. If the product is successfully developed, it will give an income of 800,000. Should the company purchase the patent? If so, what system of development is best use?

Reference no: EM132771095

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