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Creating a decission for given alternatives.

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Create a decision tree for a capital investment project to compare acquisition of a competitor with five-year present value high/low cash flow of $500/$400 million (probability 80%/20%) at an acquisition cost of $300 million, versus entry into the competitors field with a five-year present value high/low cash flow of $200/$100 million (probability 60%/40%) and a market entry cost of $30 million.

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Solution Summary

The solution creates a decision tree for choosing an alternatives from given two alternatives of entering into competitor's field and acquisition of a competitor.

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Please see the attached file for image of decission tree.

Solution:

NPV of Project if he goes for acquisition of a competitor = Expected PV of inflow - Cost
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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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