The twins, Nikki and Sean want to open a small convenience store. They have to decide whether to build a small, medium or big store. They consulted their older brother, Dave, who is a market analyst. Dave told them that he just finished a market study for a similar venture and his findings indicated a 0.35 probability that demand will be low and a 0.65 probability that demand will be high. If Nikki and Sean build a small store and demand is low, the net present value will be $150,000. If demand is high they have the option to buy their inventory from a wholesaler and realize a net present value of $100,000. If they decide they want to expand, they stand to realize a net present value of $120,000. If the twins build a medium-sized store and demand is low, the net present value will be $175,000. If the demand turns out to be high, they can do nothing and realize a net present value of $100,000. If they expand, they could realize a net present value of $135,000. If Nikki and Sean build a big grocery store and demand is low, the net present value will be $50,000. If demand turns out to be high the net present value will be $250,000. Develop a complete decision tree for this problem. What is your final recommendation to Nikki and Sean?
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
The twins, Nikki and Sean want to open a small convenience store. They have to decide whether to build a small, medium or big store. They consulted their older brother, Dave, who is a market analyst. Dave told them that he just finished a market study for a similar venture and his findings indicated a 0.35 probability that demand will be low and a 0.65 probability that demand will be high.
If Nikki and Sean build a small store and demand is low, the net present value will be $150,000. If demand is high they have the option to buy their inventory from a wholesaler and realize a net present value of $100,000. If they decide they want to expand, they stand to realize a net present value of $120,000. If the twins build a medium-sized store and demand is low, the net present value will be $175,000. If the demand turns out to be high, they can do nothing and realize a net present value of $100,000. If they expand, they could realize a net present value of $135,000. If Nikki and Sean build a big grocery store and demand is low, the net present value will be $50,000. If demand turns out to be high the net present value will be $250,000.
Develop a complete decision tree for this problem. What is your final recommendation to Nikki and Sean?
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