Chris has to decide between 2 SME's whowant to assist in his project.Vendor 1 has a 30% chance of failure andthis will have an adverse impact of $1000 tohis project. But if Vendor 1 succeeds, thereis a 70% chance of a $6000 gain.If he chooses Vendor 2, there is a 40%chance that they may fail resulting in a lossof $1200. If Vendor 2 does succeed, Chrisestimates that there is a 67% of a profit of$7500.Explain each step you would take, using adecision tree and Expected Monetary Value,to find out the vendor with the least riskloss.

When you consider an alternative there are various probabilities of gaining or losing, the mean…

Chris has to decide between 2 SME's who want to assist in his project. Vendor 1 has a 30% chance of failure and this will have an adverse impact of $1000 to his project. But if Vendor 1 succeeds, there is a 70% chance of a $6000 gain.

Chris has to decide between 2 SME's who want to assist in his project. Vendor 1 has a 30% chance of failure and this will have an adverse impact of $1000 to his project. But if Vendor 1 succeeds, there is a 70% chance of a $6000 gain.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Chris has to decide between 2 SME's who
want to assist in his project.
Vendor 1 has a 30% chance of failure and
this will have an adverse impact of $1000 to
his project. But if Vendor 1 succeeds, there
is a 70% chance of a $6000 gain.
If he chooses Vendor 2, there is a 40%
chance that they may fail resulting in a loss
of $1200. If Vendor 2 does succeed, Chris
estimates that there is a 67% of a profit of
$7500.
Explain each step you would take, using a
decision tree and Expected Monetary Value,
to find out the vendor with the least risk
loss.

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