and get no information, Branch 6 (3–17) is the decision to not build the retail store and to get noinformation, Branch 7 (4–6) is the decision to build the retail store given favorable information,Branch 8 (4–11) is the decision to not build given favorable information, Branch 9 (6–9) is asuccessful retail store given favorable information, Branch 10 (6–10) is an unsuccessful retailstore given favorable information, Branch 11 (5–7) is the decision to build the retail store givenunfavorable information, Branch 12 (5–14) is the decision not to build the retail store givenunfavorable information, Branch 13 (7–12) is a successful retail store given unfavorableinformation, Branch 14 (7–13) is an unsuccessful retail store given unfavorable information,Branch 15 (8–15) is a successful retail store given that no information is obtained, and Branch 16(8–16) is an unsuccessful retail store given no information is obtained.3-35
Results for 3-52. a.StartEndingBranchProfitUseNodeNodeNodeNodeProb.(EndNode)Branch?TypeValueStart0100Dec29,200Branch 11200YesCh29,200Branch 21300Dec28,000Branch 3240.60Dec62,000Branch 4250.40Dec–20,000Branch 53800YesCh28,000Branch 631700Fin0Branch 74600YesCh62,000Branch 84110–20,000Fin–20,000Branch 9690.980,000Fin80,000Branch 106100.1–100,000Fin–100,000Branch 115700Ch–64,000Branch 125140–20,000YesFin–20,000Branch 137120.280,000Fin80,000Branch 147130.8–100,000Fin–100,000Branch 158150.6100,000Fin100,000Branch 168160.4–80,000Fin–80,0003-36
b. The suggested changes would be reflected in Branches 3 and 4. The decision stays the same,but the EMV increases to $37,400. The results are provided in the tables that follow. In thesetables, BR = Branch; Prob. = Probability; and for Node Type, Dec = Decision, Ch = Chance, andFin = Final.Results for 3-52. b.StartEndingBranchProfitUseNodeNodeNodeNodeProb.(EndNode)Branch?TypeValueStart0100Dec37,400Branch 11200YesCh37,400Branch 21300Dec28,000Branch 3240.70Dec62,000Branch 4250.30Dec–20,000Branch 53800YesCh28,000Branch 631700Fin0Branch 74600YesCh62,000Branch 84110–20,000Fin–20,000Branch 9690.980,000Fin80,000Branch 106100.1–100,000Fin–100,000Branch 115700Ch–64,000Branch 125140–20,000YesFin–20,000Branch 137120.280,000Fin80,000Branch 147130.8–100,000Fin–100,000Branch 158150.6100,000Fin100,000Branch 168160.4–80,000Fin–80,0003-37
c. Sue can determine the impact of the change by changing the probabilities and recomputingEMVs. This analysis shows the decision changes. Given the new probability values, Sue’s best de-cision is build the retail store without getting additional information. The EMV for this decision is$28,000. The results are presented below:Results for 3-52. c.StartEndingBranchProfitUseNodeNodeNodeNodeProb.(EndNode)Branch?TypeValueStart0100Dec28,000Branch 11200Ch18,400Branch 21300YesDec28,000Branch 3240.60Dec44,000Branch 4250.40Dec–20,000Branch 53800YesCh28,000Branch 631700Fin0Branch 74600YesCh44,000Branch 84110–20,000Fin–20,000Branch 9690.
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Term
Spring
Professor
Alfandre
Tags
EMV
