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2. Determine the course of action that has the highest expected payoff for the decision tree below! .....…... $1.0* $1.3 Do nothing Expand $1.3 $1.5 Do nothing Expand $1.6 Build $1.8 $0.7 Do nothing $1.5 $1.0 $1.6 $1.6 $1.5 $1.7 ($0.9) $1.4 $1.0 $1.0 $1.1 $0.9 $2.4 Subcontract Expand Build Small demand (.4) Medium demand (.5) • Net present value in millions Large demand (.1) Small demand (4) Medium demand (.5) Large demand (.1) Medium demand (.5) Large demand (.1) Small demand (4) Other use #1 Other use #2 Do nothing Subcontract Build Do nothing Other use #1 Other use #2 Do nothing Other use #1 Other use #2

2. Determine the course of action that has the highest expected payoff for the decision tree below! .....…... $1.0* $1.3 Do nothing Expand $1.3 $1.5 Do nothing Expand $1.6 Build $1.8 $0.7 Do nothing $1.5 $1.0 $1.6 $1.6 $1.5 $1.7 ($0.9) $1.4 $1.0 $1.0 $1.1 $0.9 $2.4 Subcontract Expand Build Small demand (.4) Medium demand (.5) • Net present value in millions Large demand (.1) Small demand (4) Medium demand (.5) Large demand (.1) Medium demand (.5) Large demand (.1) Small demand (4) Other use #1 Other use #2 Do nothing Subcontract Build Do nothing Other use #1 Other use #2 Do nothing Other use #1 Other use #2

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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2. Determine the course of action that has the highest expected payoff for the decision tree below! $1.0* $1.3 Do nothing Medium demand (.5) Large demand (.1) Small demand (.4) Expand $1.3 Do nothing Expand $1.5 $1.6 Build $1.8 Do nothing Other use #1 $0.7 $1.5 Small demand (.4) Medium demand (.5) Other use #2 $1.0 Expand $1.6 Large demand (. 1) Do nothing Subcontract $1.6 $1.5 Build $1.7 Do nothing Other use #1 ($0.9) $1.4 Small demand (.4) Medium demand (.5) Other use #2 $1.0 Do nothing Other use #1 $1.0 Large demand (.1) $1.1 Other use #2 $0.9 * Net present value in millions $2.4 Subcontract Build
Transcribed Image Text:2. Determine the course of action that has the highest expected payoff for the decision tree below! $1.0* $1.3 Do nothing Medium demand (.5) Large demand (.1) Small demand (.4) Expand $1.3 Do nothing Expand $1.5 $1.6 Build $1.8 Do nothing Other use #1 $0.7 $1.5 Small demand (.4) Medium demand (.5) Other use #2 $1.0 Expand $1.6 Large demand (. 1) Do nothing Subcontract $1.6 $1.5 Build $1.7 Do nothing Other use #1 ($0.9) $1.4 Small demand (.4) Medium demand (.5) Other use #2 $1.0 Do nothing Other use #1 $1.0 Large demand (.1) $1.1 Other use #2 $0.9 * Net present value in millions $2.4 Subcontract Build
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