Purchase Solution

Decision Tree and Probability

Not what you're looking for?

Ask Custom Question

Problem:
Bill Holiday is not sure what he should do. He can either build a quadplex (i.e., a building with four apartments), build a duplex, gather additional information, or simply do nothing. If he gathers additional information, the results could be either favorable or unfavorable, but it would cost him $3,000 to gather the information. Bill believes that there is a 50-50 chance that the information will be favorable. If the rental market is favorable, Bill will earn $15,000 with the quadplex or $5,000 with the duplex. Bill doesn't have the financial resources to do both. With an unfavorable rental market, however, Bill could lose $20,000 with the quadplex or $10,000 with the duplex. Without gathering additional information, Bill estimates that the probability of a favorable rental market is 0.7. A favorable report from the study would increase the probability of a favorable rental market to 0.9. Furthermore, an unfavorable report from the additional information would decrease the probability of a favorable rental market to 0.4. Of course, Bill could forget all of these numbers and do nothing. What is your advice to Bill?

Please show decision tree.

Attachments
Purchase this Solution
Solution Summary

This solution creates a decision tree based on a given circumstance

Purchase this Solution
Free BrainMass Quizzes
Terms and Definitions for Statistics

This quiz covers basic terms and definitions of statistics.

Measures of Central Tendency

This quiz evaluates the students understanding of the measures of central tendency seen in statistics. This quiz is specifically designed to incorporate the measures of central tendency as they relate to psychological research.

Measures of Central Tendency

Tests knowledge of the three main measures of central tendency, including some simple calculation questions.

Know Your Statistical Concepts

Each question is a choice-summary multiple choice question that presents you with a statistical concept and then 4 numbered statements. You must decide which (if any) of the numbered statements is/are true as they relate to the statistical concept.

View More Free Quizzes
Related BrainMass Solutions

  • Decision Analysis : Benefits of a Decision Tree Plan that Displays Decision Alternatives

    With computations in a decision tree plan, there is a probability of strong demand and a probability of small demand to interpret the result.

  • Decision Tree

    A decision tree has been provided for Kraft Foods. The decision tree is provided in an excel format.

  • Decision tree

    123612 Decision Tree Expansion Decision 2. Shown (attached) is a decision tree describing an expansion decision. a. Are "sales" independent of the expansion decision? Why or why not? b. Are "costs" independent of the expansion decision?

  • Decision Making

    tree to analyze these decision alternatives Please refer attached file for decision tree.

  • Using a Decision Tree to Solve a Problem

    To draw a decision tree, go through all of the possibilities one by one. At each event, draw a line to the different possible choices or outcomes and make a note of the associated costs/rewards/probability.

  • decision tree

    Using your suggestion we use the decision tree. In the decision tree we set up the two alternative means of transport, the costs involved with the transport and the probability that the transport may be completed on time.

  • Decision tree

    Then, p*300,000 - 0.25*150,000 = 0 Therefore, p = = 12.5% This provides an example of constructing a decision tree and finding expected value and probability.

  • Decision Tree

    This solution is comprised of a detailed explanation of the various aspects of Decision Tree Analysis, like Expectation Value, Probability etc.

  • bayes theorem and probability

    Similarly probability of success given that forecast is failure and failure given forecast is failure. 3. Draw the decision tree 4. Calculate the payoffs at each decision node.

  • Decission Tree for capital Investment decision

    228036 Decision Tree for capital Investment decision Create a decision tree using the method described in the textbook or any method for a capital investment project to compare acquisition of a competitor with five-year present value high/low cash flow

View More Related Solutions