Draw a decision tree with the expected values

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Reference no: EM132206277

Question: Essay - Your CEO has asked for your input on making a decision. Draw a decision tree diagram and advise the best decision:

Machine A costs $600k and has an output cost of $.80/unit.

Machine B costs $500k and has an output cost of $.60/unit.

Machine C costs $400k and has an output cost of $.50 unit.

The sales forecast from the Marketing Department is as follows:

Worst case scenario - 25% probability - 100k units sold.

Likely scenario - 50% probability - 200k units sold.

Best case scenario - 25% probability - 300k units sold.

Assume the machine is amortized over 10 years with no salvage value. Advise your CEO of the best machine to purchase based on the yearly cost.

Draw a decision tree with the expected values and advise which machine should be purchased.

Reference no: EM132206277

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