Excel, In Class Problem, Decision Trees Solution

# Excel, In Class Problem, Decision Trees Solution - Revised...

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States of 0.7 Expand \$800,000 Maintain Status Quo 1,300,000 Sell Now 320,000 EVPI = \$195,000 Good Foreign Competitive Conditions Alternatives

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f Nature 0.3 \$500,000 \$710,000 (150,000) \$865,000 320,000 \$320,000 Decision: \$865,000 Status Quo Poor Foreign Competitive Conditions Expected Value
Revised Probability when a Positive Report is G States of Nature Good Conditions 0.7 0.7 Poor Conditions 0.3 0.2 P(P): Revised Probability when a Negative Report is States of Nature Good Conditions 0.7 0.3 Poor Conditions 0.3 0.8 P(N): Prior Probabilities Conditional Probabilities Prior Probabilities Conditional Probabilities

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Given 0.49 0.891 0.06 0.109 0.55 Given 0.21 0.467 0.24 0.533 0.45 Prior x Conditional

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Unformatted text preview: Revised (Posterior Probabilities) Prior x Conditional Revised (Posterior Probabilities) Decision Node Probability Node Payout P(P) 0.55 EV with Consultant's Info \$916,118 P(N) 0.45 EVSI: \$51,117 Efficiency: 0.26 Expand \$767,300 \$1,141,950 Maintain \$1,141,950 Sell \$320,000 Expand \$640,100 \$640,100 Maintain \$527,150 Sell \$320,000 P(g|P) \$800,000 0.89 P(p|P) 0.11 \$500,000 P(g|P) \$1,300,000 0.89 P(p|P) 0.11-\$150,000 P(g|P) \$320,000 0.89 P(p|P) 0.11 \$320,000 P(g|N) \$800,000 0.47 P(p|N) 0.53 \$500,000 P(g|N) \$1,300,000 0.47 P(p|N) 0.53-\$150,000 P(g|N) \$320,000 0.47 P(p|N) 0.53 \$320,000...
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## This note was uploaded on 09/24/2010 for the course BU 628 taught by Professor Dr.tapp during the Spring '10 term at Georgian.

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Excel, In Class Problem, Decision Trees Solution - Revised...

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