The supplement to Chapter 5 in your textbook describes and develops several decision trees.
Address the following requirements:
- Develop a decision tree for the case described.
- Explain the process of developing a decision tree, draw the decision tree [include the decision tree in an appendix showing chance nodes, probabilities, outcomes, expected values, and net expected value].
- Defend your final decision based on your decision tree.
Case for consideration—An operations manager for a cereal producer is faced with a choice of:
- A large-scale investment [A] to purchase a new cooker which could produce a substantial pay-off in terms of increased revenue net of costs but requires an investment of 3,750,000 Saudi Riyal. After extensive market research it is thought that there is a 40% chance that a pay-off of 9,375,000 Saudi Riyal will be realized, but there is a 60% chance that it will be only 3,000,000 Saudi Riyal.
- A smaller scale project [B] to refurbish an existing cooker. At 1,875,000 Saudi Riyal, this option is less costly but produces a lower pay-off. Again, extensive research data suggests a 30% chance of a gain of 3,750,000 Saudi Riyal but a 70% chance of it being only 1,875,000 Saudi Riyal.
- Continuing the present operation without change [C] which cost nothing, but produces no pay-off.
Directions:
- Your essay is required to be four to five pages in length, which does not include the title page and reference pages, which are never a part of the content minimum requirements.
- Support your submission with course material concepts, principles, and theories from the textbook and at least three scholarly, peer-reviewed journal articles.
- APA style guidelines 7th
- Avoid plagiarism.
- Give Examples where ever applicable.
- Keep each paragraph between 3-5 sentences.
- Use intext citation [max. 3 per page]
