Question
Decision tree is a key part of expected monetary value analysis, which is a tool and technique in the performance quantitative risk assessment process
Decision tree is a key part of expected monetary value analysis, which is a tool and technique in the performance quantitative risk assessment process of risk management. Company X wants to decide between Project A, which will cost RM200,000 upfront and Project B, which will cost RM300,000 upfront. If the economy performs well, Project A will bring in RM1,500,000 for the company, but if the economy performs poorly, then it will lose RM500,000 for the company. If the economy performs well, Project B will bring in RM1,700,000 for the company, but if the economy performs poorly, then it will lose RM600,000 for the company. There is a 55% chance of a strong market and a 45% chance of a weak market. (a) Determine which project produces higher expected monetary value. (4 Marks) (b) If the expected monetary value of Project B increases to RM520,000 which option should the company choose? (2 Marks) (c) If the chance of a strong and weak market changes to 30% and 70% for both projects, what is the new best option? (4 Marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started