Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
A company is considering whether to open another shop to dry clean clothes. The cost of fitting out the premises will be 325,000 and they
A company is considering whether to open another shop to dry clean clothes. The cost of fitting out the premises will be 325,000 and they estimate there is a 0.80 probability that the venture will be a success. If the shop is successful they estimate the profits after the fitting out costs will be:
- 500,000 profit if the shop is very successful;
- 150,000 profit if it is moderately successful; and
- 10,000 profit if it is just successful.
The estimate probabilities for each of these events are:
- Very successful 0.30
- Moderately successful 0.45
- Just successful 0.25
If the shop is unsuccessful the loss will be equal to the cost of fitting out the premises.
Required:
- Using a decision tree calculate the expected profit or loss of opening the new store.
- Advise the company whether it should proceed with the venture giving regards to the projected returns and probability of failure.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started