TREE1 - chance sales will be $30,000 On the other hand if...

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1 HOMEWORK You have a small store in the down town district of a town. The Chamber of Commerce has planned to hold a side walk sale scheduled for next week end. The forecast for that week end is 30% chance for rain. Given this fact, you are not sure if you should plan to lay out your merchandise out-doors or in-doors. The Chamber of Commerce has also arranged renting of large tents in case it rains. These tents could be reserved for $500 with an additional payment of $500 should you request for the tenant. If you do not reserve the tent but request for it later when it rains, the cost will be $2,000. The availability of a tent means you do have the option of planning to have the sale out-doors. To have the sale out-doors or in-doors, and to reserve a tent or not depends on what you forecast sales to be under various circumstances. After some thought you figure that if you lay your merchandise in-doors there is a 30% chance sales will be $50,000 and 70%
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Unformatted text preview: chance sales will be $30,000. On the other hand if you arrange things out-doors, sales will be $40,000 under a tent and as much as $60,000 if there is no rain and therefore you do not use a tent. You must now decide if you should plan an in-door or out-door sale. And further, you must decide if you should reserve a tent. Or, you could take your chances, not reserve a tent and should it rain, you could either move in-doors or get a tent at that time and pay the $2,000. Use a decision tree to determine the best course of action. 2 sales high $50,000 0.3 $36,000 In-doors 1 sales low $30,000 0.7 $53,850 rain Get tent 8 0.3 2 $500 $40,000 Reserve tent 6 $500 No rain 0.7 $60,000 Out-doors $36,000 high 7 move in-doors $50,000 $38,000 3 0.3 rain $53,400 0.3 4 low don’t reserve 5 $30,000 0.7 Get tent $2,000 $40,000 No rain $60,000 0.7 $36,000 $39,500 $53,350 $36,000 $38,000 $53,400 $53,400...
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TREE1 - chance sales will be $30,000 On the other hand if...

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