Excel TreePlan Problem
kev44Problem 3-2
(Use TreePlan to solve this problem in Excel)
Develop new process: Use present process:
Outcomes |
Probability |
Profit ($1,000,000s) |
Great success |
.30 |
$ 600 |
Moderate success |
.60 |
300 |
Failure |
.10 |
-100 |
Outcomes |
Probability |
Profit ($1,000,000s) |
Great success |
.50 |
$ 300 |
Moderate success |
.30 |
200 |
Failure |
.20 |
-40 |
Subcontract:
Outcome |
Probability |
Profit ($1,000,000s) |
Moderate success |
1.00 |
250 |
The cost of preparing the contract proposal is $2 million. If the company does not make a bid, it will invest in an alternative venture with a guaranteed profit of $30 million. Construct a sequential decision tree for this decision situation and determine whether the company should make a bid.