Purchase Solution

Decision Tree Analysis for National Environmental, Inc.

Not what you're looking for?

Ask Custom Question

National Environmental, Inc. estimates that its new product, ESA-C, has a 40% chance of being a major winner, a 35% chance of a medium winner, and a 25% chance of being a loser. However, before the company makes a production commitment, it would like to further investigate the situation, because these initial estimates [prior probabilities] may not be accurate. They are considering seeking the advice of a market researcher to conduct a special survey.

From previous experience, it is known that such a special survey can predict success, predict failure, or be inconclusive. Statistically, it is known that of all the new products that were successful [major winner], 65 percent of the time the surveys correctly predicted success, 25 percent of the time the surveys were inconclusive, and 10 percent of the time the surveys predicted failure. For those products that were medium winners, the surveys predicted success 35 percent of the time, 45 percent of the time the surveys were inconclusive, and 20 percent of the time the surveys predicted failure. For those products that were losers, the surveys predicted success 10 percent of the time, 40 percent of the time the surveys were inconclusive, and the surveys predicted failure 50 percent of the time.

The marketing department estimates that if ESA-C is a major winner, the payoff is expected to be $800,000. If the product is a medium winner, the payoff is expected to be $400,000. However, if the product is a loser, the company will incur a loss of $750,000.

The company expects to pay the market researcher $35,000.

The company needs to make several decisions.

(a) Draw the decision tree. Label all of the branches and include appropriate probabilities. Be sure to complete the tree by indicating outcomes [payoffs, costs] at the end of the final branches.
(b) Show the revised probabilities tables.
(c) Identify and show the value of the each node. What is your optimal strategy recommendation? Explain your decision.
(d) Determine expected value of sample information and explain what it means in terms of this situation.
(e) Determine expected value of perfect information based upon information prior to receiving survey outcomes.

Purchase this Solution
Solution Summary

The solution involves decision tree analysis of the National Environmental, Incorporated. The solution is contained in the attached files showing how the analysis was arrived at with full details and step-by-step computation.

Purchase this Solution
Free BrainMass Quizzes
Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

View More Free Quizzes
Related BrainMass Solutions

  • Explain the parts of a decision tree and benefits for using it

    Gerber Products, Inc., the well-known baby products company, recently used decision tree analysis in deciding whether to continue using the plastic known as poly-vinyl chloride or, more commonly, PVC.

  • Analysis and Decision Tree

    22215 Analysis and Decision Tree Techware Incorporated is considering the introduction of two new software products to the market.

  • Decision Tree Analysis for Copy Makers, Inc.

    The solution is a decision tree strategy for Copy Makers, Inc. (CMI) whether to grant credit or not to a customer. The analysis showed that it must grant the credit based on the completed decision tree analysis.

  • Activity Based Cost Accounting & CVP Excercise

    Instructions: Create an incremental analysis for the make or buy decision.

  • Real option for Bradford Services

    $1 million for the following 3 years. Use decision tree analysis to estimate the value of the project, including the opportunity to implement the new project at Year 3.

  • A Review of the PLT Website

    The reason it is meaningful is that the group has worked hard to address state and national standards for environmental education and as the experts in the field, it helps the teacher promote the content for the science curriculum. 3.

  • decision tree

    453047 Decision analysis: Describe a decision tree and discuss how such a tool can be utilized to improve business decision making Select an organization you have worked for or any organization of interest and discuss how decision analysis could be used

  • Decision Analysis for Production with Uncertain Demand

    577856 Decision Analysis for Production with Uncertain Demand Please help with the following problem: I would like to know how decision analysis could be used to solve a business problem in an organisation you have worked in or that interests you.

  • Compliance with Section 102 of the National Environmental Policy

    Section 102 of the National Environmental Policy Act, a reviewer must evaluate a NEPA document for certain crieria to confirm an Environmental Impact Statement or Environmental Analysis has met the requirement of this section.

View More Related Solutions