a. Draw the decision tree for the Computex company showing the cash flow and the net profit for each endpoint b. What is the optimal decision for Computex using expected monetary values?
Computex is a new company in the computer field. The company has produced one product that has been marketed and want to develop a new graphical display terminal.Mr. Renap is the Chief Engineer and has developed two alternatives: First alternative : Conventional way and use existing facilities with little modification cost ($50000), and it will not be very different from existing terminals that are being marketed by other competitors. Second alternative: Radical departure from existing terminals in the market. Now it is January 2021 and if the company must decide now, the radical development of graphical terminal depends upon the development of a special display screen which itself depends on the quality of coating materials. Mr.Renap investigation of this new material leads him to believe that there is: 30% chance High-quality coating material 50% chance Medium-quality coating material 20% chance Low-quality coating material He will not know for sure except in six months from now, i.e. in July 2021 If the company chose the radical approach, they have to develop the prototype now. This is expected to cost $30,000 over the next six months. After learning about the coating in six months, two options will be open: -Continue with the development at an additional cost of $100,000. -Change to the conventional approach at the cost of $40,000. If the company does not do any of these two alternatives now and wait till July 2021 and start a crash program and finish the conventional approach at a cost of $100,000. The sales manager investigation of the market shows that revenue depends on the approach as well as quality of the quoting material as follows: Contribution Conventional approach $150,000 Radical, High quality $300,000 Radical, Medium quality $200,000 Radical, Low quality $100,000
a. Draw the decision tree for the Computex company showing the cash flow and the net profit for each endpoint
b. What is the optimal decision for Computex using expected monetary values?
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