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1. A clothing store is opening a second location and wants to decide whether to open in San Francisco or New York. Opening a location in either city will involve different capital expenditures and demonstrate different rates of success. Below are the relevant data: DECISION PROBABILITY OF PROBABILITY OF SUCCESS FAILURE San Francisco 60% 70% 40% New York 30% PAYOFF (SUCCESS) 15,000,000 30,000,000 PAYOFF (FAILURE) 4,000,000 10,000,000 DECISION San Francisco New York The costs associated with opening each location are as follows: in San Francisco, the store will need to invest $2 million, while a New York location will require an investment of $5 million. The expected payoff amounts represent the potential revenue if the store succeeds, or the potential loss if the store fails. REQUIRED: a. Draw the decision tree for the above problem; b. Compute for the Expected Value for each decision; c. Compute for the net gain / loss of each decision

1. A clothing store is opening a second location and wants to decide whether to open in San Francisco or New York. Opening a location in either city will involve different capital expenditures and demonstrate different rates of success. Below are the relevant data: DECISION PROBABILITY OF PROBABILITY OF SUCCESS FAILURE San Francisco 60% 70% 40% New York 30% PAYOFF (SUCCESS) 15,000,000 30,000,000 PAYOFF (FAILURE) 4,000,000 10,000,000 DECISION San Francisco New York The costs associated with opening each location are as follows: in San Francisco, the store will need to invest $2 million, while a New York location will require an investment of $5 million. The expected payoff amounts represent the potential revenue if the store succeeds, or the potential loss if the store fails. REQUIRED: a. Draw the decision tree for the above problem; b. Compute for the Expected Value for each decision; c. Compute for the net gain / loss of each decision

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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1. A clothing store is opening a second location and wants to decide whether to open in San Francisco or New York. Opening a location in either city will involve different capital expenditures and demonstrate different rates of success. Below are the relevant data: DECISION PROBABILITY OF PROBABILITY OF SUCCESS FAILURE San Francisco 40% 60% New York 30% 70% PAYOFF (SUCCESS) 15,000,000 30,000,000 PAYOFF (FAILURE) 4,000,000 10,000,000 DECISION San Francisco New York The costs associated with opening each location are as follows: in San Francisco, the store will need to invest $2 million, while a New York location will require an investment of $5 million. The expected payoff amounts represent the potential revenue if the store succeeds, or the potential loss if the store fails. REQUIRED: a. Draw the decision tree for the above problem; b. Compute for the Expected Value for each decision; c. Compute for the net gain / loss of each decision
Transcribed Image Text:1. A clothing store is opening a second location and wants to decide whether to open in San Francisco or New York. Opening a location in either city will involve different capital expenditures and demonstrate different rates of success. Below are the relevant data: DECISION PROBABILITY OF PROBABILITY OF SUCCESS FAILURE San Francisco 40% 60% New York 30% 70% PAYOFF (SUCCESS) 15,000,000 30,000,000 PAYOFF (FAILURE) 4,000,000 10,000,000 DECISION San Francisco New York The costs associated with opening each location are as follows: in San Francisco, the store will need to invest $2 million, while a New York location will require an investment of $5 million. The expected payoff amounts represent the potential revenue if the store succeeds, or the potential loss if the store fails. REQUIRED: a. Draw the decision tree for the above problem; b. Compute for the Expected Value for each decision; c. Compute for the net gain / loss of each decision
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