Hi Tutor,

The company now has the following additional information (Part B).

If you are not familiar with the Decision Tree concept, please refer to Appendix B (Modeling

Uncertain Cash Flows Using Net Present Value Analysis) of our textbook

It is reported that the construction union contract expires at the end of the 48

th

week. Hence there

might be a union strike at the end of 48

th

week with 60 % chance. Based on past 10 year history,

if the strike occurs, it usually takes 5 weeks with 70 % or 7 weeks with 30 % chance.

The

company knows that they could not continue their work during the strike

. During the strike, the

company is not responsible for labor and material charges. However, it has still to keep paying

all miscellaneous costs

.

(d)

Let us assume that we consider the task duration as a constant (Hence, ignore the standard

deviation, and use the expected duration only). Describe all possible three scenarios related

to the strike with their realization probability.

(e)

Considering all scenarios, what is the expected return (revenue - expected cost) for this

company from this construction?

Can you help with question (d) and (e)?