Explore BrainMass
Share

# Decision Tree Analysis for Copy Makers, Inc.

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Copy Makers Inc (CMI) has just received a credit request from a new customer who wants to purchase a copying machine. As input to its decision of whether to grant credit, CMI has made the following estimates and assumptions:

- If CMI denies the customer credit, there is a 20 percent chance that the customer will buy the copying machine with cash anyway.
- If CMI grants credit, there is a 70 percent chance the customer will be a good credit risk.
- If CMI grants credit and the customer is a good credit risk, CMI will collect 100 percent of the purchase price.
- If CMI grants credit and the customer is a bad credit risk, CMI has two options. Under the first option, CMI would continue to send the customer a bill and hope it is eventually paid. Under this option, CMI will collect 100 percent, 50 percent, or 0 percent of the amount owed, with probabilities 0.1, 0.2, and 0.7, respectively. Under the second option, CMI would vigorously pursue the collection of the amount owed. To do so would cost CMI 25 percent of the amount owed, regardless of the amount eventually collected. Under this second option, CMI will again collect 100 percent, 50 percent, or 0 percent of the amount owed, with probabilities 0.3, 0.5, and 0.2 respectively.
- The copy machine sells for \$8000 and costs CMI \$5000. Non vigorous enforcement has not cost, while vigorous enforcement costs \$2000.

a. What is the complete, optimal decision strategy for CMI?
b. What is the optimal expected value?

https://brainmass.com/economics/risk-analysis/447630

#### Solution Preview

Results and decision for Copy Makers, Inc. (CMI)

a. What is the complete, optimal decision ...

#### Solution Summary

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.

\$2.19
Similar Posting

## Critical Path of the Construction Project and Data Collection

Complete Exercises 13.1, 13.3, and 13.11 on pages 336 & 341 in Quantitative Methods in Health Care Management.

Use this template to record and submit your answers for grading: Excel template for Exercises 13.1, 13.3, and 13.11

Use these Excel automated templates for your calculations (do not submit these files, but transfer information from them to the Excel file you are submitting): CPM Deterministic for 13.3 and PERT Probabilistic for 13.11.

Any existing numbers in green cells in the automated tables are for examples, and show where you should enter the data. You must delete or overwrite these numbers to perform the calculations. The yellow cells of the automated templates are protected to prevent users from accidentally deleting or overwriting the formulas. There is no need to unprotect the templates.

View Full Posting Details