A company wants to decide whether he should expand large or expand small.

If he expands
large, the sales revenue would rise up to P400,000 given the probability of 45%, and lower
down to P50,000. If he expands small, the sales revenue would lower to P30,000 given the
probability of 60%, and rise up to P278,000. If the company would use decision trees to
decide, what would they choose?

400,000 35%
Expand Large 172500
50,000 65%

278,000 60%
Expand Small 178800
30,000 40%

The company should expand small

Maricel wants to decide whether to upgrade the restaurant to attract more customers or not.
Upgrading the restaurant costs P250,000 and if she upgrades, morelikely 75% the sales will be
P765,000, and would go down to P300,000. If she doesnt upgrade, morelikely 80% the sales will be
P300,000 and would go down to P150,000. If Maricel would use the decision trees, what should she
do?

765,000 75% Upgrade Dont

Upgrade 648750 Sales 648750 270000
300,000 25% Cost to Upgrade 250000 0
398750 270000
300,000 80%
Dont Upgrade 270000
150,000 20%

Maricel should upgrade the restaurant.

Jollihonee is deciding whether to advertise their new product or to let an entertainer play the mascot of
the new product. Advertising the product would cost P10,000. If Jollihonee will advertise, the mostlikely
sales will be P687,000 with the chance of 84% while the pessimistic sales would be P386,000. Hiring an
entertainer also with the making of the mascot would cost P50,000. If Jollihonee will let an entertainer
play the mascot, the mostlikely sales will be P800,600 with the chance of 76% while the pessimistic
sales will be P400,000. If Jollihonee will use the decision trees , what would the company do?

687,000 84% Advertise Mascot

Advertise 638840 Sales 638840 704456
386,000 16% Cost 10000 50000
628840 654456
800,600 76%
Mascot 704456
400,000 24%

Jollihonee should hire an entertainer to play the mascot of the new product.
Zed and Adrian and run a small bicycle shop called "Z to A Bicycles". Zed and Adrian wants to
decide if they should order 500 kid bicycles that cost P250. The shipping cost is P10 per
bicycle. If Zed and Adrian orders, The probability of demand of Mostlikely sales and pessimistic
sales is P300,000 and P200,000 respectively. If not, it would be P100,000 , and P40,000
respectively. With the probabilities of 0.76, 0.24, 0.56, 0.44 respectively.Using the Decision
Tree, what should Zed and Adrian do?

Order Kiddie 300,000 76% Order Dont

Bicycle 276000 Sales 276000 73600
200,000 24% Cost 130000 0
146000 73600
Dont Order 100,000 56%
Kiddie Bicycle 73600
40,000 44%

Zed and Adrian should Order kid bicycle.

Ronald decides whether to invest P100,000 or put up a business. If he invests, there is a 60%
chance that he would get P400,000 and P150,000 if the bank would bankrupt. If he put up a
business, mostlikely 40% the sales would be P400,000 and P200,000 on low sales. If Ronald
uses a decision tree, what choice should he make?

400,000 60%
Invest 300000
150,000 40%

400,000 40%
Business 280000
200,000 60%

Ronald should invest the P100,000

The Newox Company is considering whether to sell the gas or put up a business. The company
must spend P70,000 to cap the well and provide the necessary hardware and control
equipment. If they drill and find gas, there are two alternatives. Newox could sell to West Gas,
which has made a standing offer of P800,000 to purchase all rights to the gas well's
production. Alternatively, if gas is found, Newox can decide to keep the well instead of selling
to West Gas; in this case Newox manages the gas production and takes its chances by selling
the gas on the open market. At the current price of natural gas, if gas is found it would have a
value of P160,000 on the open market. However, there is a possibility that the price of gas will
rise to double its current value, in which case a successful well will be worth P320,000. The
company's engineers feel that the chance of finding gas is 30 percent; their staff economist
thinks there is a 60 percent chance that the price of gas will double. If the company uses
decision trees, what decision would they make?

Sell to West 800,000 30%

Gas 240000 West Gas Business
0 70% Sales 240000 256000
Cost 70000 70000
320,000 60% 170000 186000
Business 256000
160,000 40%

Newox should put up a business with the gas collected.

Really Big Ideas, Inc., a small company that develops inventions for the consumer market, has
recruited you as a consultant to make a recommendation on a critical business decision. The
company wants to decide which project to make for the three-month window of opportunity
to develop a new product using new pattern recognition software the company recently
created. The smoke and fire detector will cost P100,000 to develop, and if it succeeds the
Business Analysis department says it will generate revenue of P1,000,000 and P300,000 if not.
The motion detector, which uses conventional household lighting, will only cost $10,000 to
develop. He adds that the analysts expect such a device to generate P300,000 in revenue and
P50,000 if not. The company estimated that the smoke and fire detector has a 50% chance of
success, and that the motion detector has an 80% chance of success. If the company would
use decision trees, what project would they make?

Smoke
Smoke and 1,000,000 50% and Fire Motion
Fire Detector 650000 Detector Detector
300,000 50% Sales 650000 250000
Cost 100000 10000
Motion 300,000 80% 550000 240000
Detector 250000
50,000 20%

Really Big Ideas should pick Smoke and Fire Detector for the project.
You are deciding which numbers to pick to bet in a lottery. Your friend gives you set of
numbers A and B. For A, the bet costs P1,000 and has a 10% chance of winning P1,000,000.
For B, the bet costs P400 and has a chance of 60% of winning P200,000 based on the last
results. In using the Decision tree, which set of numbers would you pick?

1,000,000 10%
Set A 100000 Set A Set B
0 90% Sales 100000 120000
Cost 1000 400
200,000 60% 99000 119600
Set B 120000
0 40%

You should bet on the numbers on Set B

A local store is deciding whether to develop and innovate a new product. The cost to be incurred is expected to be $
1,000,000, there is a 70% chance that the product will be successful, and a 30% chance that it will fail. If it is successful,
the levels of expected profits have been estimated as follows, depending on whether the products ability to be sold is
most likely, more likely or likely:

Probability Profit
Most Likely 0.2 $2,00,000
More Likely 0.5 $1,000,000
Likely 0.3 $500,000

If it fails, there is a 0.7 probability that the research and development work can be sold for $60,000 and a 0.3
probability that it will be worth nothing at all. Draw a decision tree.

$0
Do not
develop high .2 $ 2,000, 000

sucess .7 $ 1,050,000 medium .5 $ 1,000, 000

Develop
product cost low .3
$ 1,000,000 $ 747,600
$ 500, 000
sell worth .7 $ 60, 000
failure .3 $ 42,000

sell nothing .2 $0
 pected to be $
. If it is successful,
bility to be sold is

nd a 0.3
Charlotte Watson, the manager of a small sales company, has the opportunity to buy a fixed
quantity of a new type of Android tablet which she can then offer for sale to clients. The
decision to buy the product and offer it for sale would involve a fixed cost of P200,000. The
number of tablets that will be sold is uncertain, but Charlotte judges that Sales will be poor
with probability 0.2; this will result in an income of P100,000. Sales will be good with
probability 0.8; this will result in an income of P350,000. For an additional fixed cost of
P30,000, market research can be conducted to aid the decision making process. The outcome
of the market research can be either positive or negative, with probabilities and sales of 0.58
and 0.42, P450,000 and P200,000 respectively. If the manager would use decision trees, what
should he do?

tablets
Buy tablets w/o Buy tablets
w/o market 350,000 80% market
w/ market
research
research 300000 research
100,000 20% Sales 300000 345000
Cost 0 30000
Buy tablets w/
market 450,000 58% 300000 315000
research 345000
200,000 42%

Charlotte must buy the tablets with market research

Grazia recently opened a restaurant in Alabang. 6 months later, she is deciding whether to
expand or not. Expanding the restaurant will cost her P350,000. If she decided to expand, the
sales will be 80% of P2,000,000 during high peak and 20% of P1,000,000 during low peak. If
she decided not to expand, the sales will be 70% of P500,000 and 30% P200,000 during low
peak. Use a decision tree to help Grazia whether to expand or not.

2,000,000 80%
Expand 1800000
1,000,000 20%

500,000 70%
Dont Expand 410000
200,000 30%

Expand Dont
Sales 1800000 410000
Expd. Cost 350000 0
1450000 410000

Grazia should decide to expand her restaurant.

A company is deciding whether to develop and launch a new product. Research and development costs are expected
to be $400,000 and there is a 70% chance that the product launch will be successful, and a 30% chance that it will fail.
If it is successful, the levels of expected profits and the probability of each occurring have been estimated as follows,
depending on whether the products popularity is high, medium or low:

Probability Profit
High 0.2 $500,000 per annum for two years
Medium 0.5 $400,000 per annum for two years
Low 0.3 $300,000 per annum for two years

If it is a failure, there is a 0.6 probability that the research and development work can be sold for $50,000 and a 0.4
probability that it will be worth nothing at all. Draw a decision tree.

Do not $0
develop high .2 $ 1,000, 000

sucess .7 $ 780,000 medium .5

Develop $ 800, 000
product cost low .3
$ 400,000 $ 555,000
$ 600, 000
sell worth .6 $ 50, 000
failure .3 $ 30,000

sell nothing .4 $0
 Jenny Lind is a writer of romance novels. A movie company and a TV network both want exclusive
rights to one of her more popular works. If she signs with the network, she will receive a single
lump sum, but if she signs with the movie company, the amount she will receive depends on the
market response to her movie. What should she do?

Small Box Medium Large Box

Decision Ofiice Box Office Office
Sign in with
movie $200,000 $1,000,000 $3,000,000
company

Sign in with tv $900,000 $900,000 $900,000

network

Probabilities 0.3 0.6 0.1

200, 000 30% small

1,000,000 60% medium
movie co. 960000
3,000,000 10% large
900,000 30% small
900,000 60% medium
tv network 900000
900,000 10% large

Jenny should sign in with the movie company.

Mary is a manager of a gadget factory. Her factory has been quite successful the past three years.
She is wondering whether or not it is a good idea to expand her factory this year. The cost to
expand her factory is $1.5M. If she does nothing and the economy stays good and people continue
to buy lots of gadgets she expects $3M in revenue; while only $1M if the economy is bad. If she
expands the factory, she expects to receive $6M if economy is good and $2M if economy is bad.
She also assumes that there is a 40% chance of a good economy and a 60% chance of a bad
economy.

3,000,000 40%
don't expand 1800000
1,000,000 60%

6,000,000 40%
expand 3600000
2,000,000 60%

Expand Don't Expand

Sales 3600000 1800000
Cost 1500000
2100000 1800000

Mary should decide to expand because the profit is higher.

Joes garage is considering hiring another mechanic. The mechanic would cost them an additional
$50,000 / year in salary and benefits. If there are a lot of accidents in Providence this year, they
anticipate making an additional $75,000 in net revenue. If there are not a lot of accidents, they
could lose $20,000 off of last years total net revenues. Because of all the ice on the roads, Joe
thinks that there will be a 70% chance of a lot of accidents and a 30% chance of fewer
accidents. Assume if he doesnt expand he will have the same revenue as last year.

75,000 70% higher chances of

hire 46500 accidents
-20,000 30% lower chances of
accidents

don't hire 0

Hire Don't Hire

Profit 46500 0
Cost 50,000
-3500 0

Joe should not hire the mechanic.

Gigi Hadid is deciding to move to another modelling agency. Due to her popularity and charisma, Storm
Models Management and IMG Worldwide are trying to make their best to sign Gigi on their talents list. The
following are the amounts and probabilities proposed by the agencies for Gigi's talent fee per contract. Help
Gigi decide what agency she should sign in.

TF for TF for
Decision Editorials Commercials

Storm Models $500,000 $3,000,000

Management

IMG Worldwide $300,000 $4,000,000

Probabilities 0.4 0.6

500,000 40%
SMM 2000000
3,000,000 60%

300,000 40%
IMG 2520000
4,000,000 60%

Gigi Hadid should sign with IMG.

The owner of the Snow Fun Ski Resort wants to decide how the resort should be run in the coming winter
season. The resorts profits for this years skiing season will depend on the amount of snowfall during the
winter. On the basis of prior experience, the probability distribution of snowfall and the resulting profit is
summarized below.

Amount of Snow Probability Profit

a.) > 40 inches 0.4 120,000

b.) 20-40 inches 0.2 40,000
c.) < 20 inches 0.4 -40,000

The owner has recently received an offer from a larger hotel chain to operate the resort for the winter, guaranteeing a
$45,000 profit for the season. The owner is also considering leasing snowmaking equipment for the season. If the
equipment is leased, the resort will be able to operate full time, regardless of the amount of natural snowfall. If the
owner decides to use snowmakers to supplement the natural snowfall, the profit for the season will be $120,000 minus
the cost of leasing and operating the snowmaking equipment. The leasing cost will be about $12,000 per season,
regardless of how much it is used. The operating cost will be $10,000 if the natural snowfall is more than 40 inches,
$50,000 if it is between 20 and 40 inches, and $90,000 if it is less than 20 inches.

Large hotel $ 45,000

operates 120000 0.4
Operates w/o a
snowmaker 40000 0.2
40,000
-40000 0.4
98000 0.4
Operates with a 58000 0.2
snowmaker 58,000
18000 0.4
ter, guaranteeing a
season. If the
snowfall. If the
be $120,000 minus
0 per season,
than 40 inches,
Clark Coffee operates a chain of five luxury shops in London. It is looking at two options to increase
revenue accross the chain . The estimated impact of the tow options on sales (and their probabilities) are
shown below as are the associated costs of each option.

Launch Loyalty Cut Prices

Card
Cost of Option 500,000 300,000
Probability of High Sales 0.6 0.8
Probability of Low Sales 0.4 0.2
Result of High Sales $ 1,000,000 $ 800,000
Result of Low Sales $ 750,000 $ 500,000

do nothing

Launch loyalty 1,000,000 0.6

card
900,000
750,000 0.4

cut prices 800,000 0.8

740,000
500,000 0.2

Launch Loyalty Cut Prices

Card
Sales 900,000 740,000
Cost 500000 300000
Net Gain 400,000 440,000

Clark Coffe should cut its prices.

Joebert decides to etablish his own business after graduating college. He is thinking of opening a
restaurant or a coffee shop near the city center. The money he needs to open a restaurant is P3,000,000
and P4,000,000 for a coffee shop. During high sales, the restaurant yields an income of P8,000,000/yr
and P7,000,000 for the coffee shop. During low sales, the restaurant yields an income of P3,000,000/yr
and P4,000,000 fo the coffee shop. The probability of high sales is 40% and 60% for low sales.

8,000,000 40%
Restaurant 5000000
3,000,000 60%

7,000,000 40%
Coffee Shop 5200000
4,000,000 60%

Restaurant C. Shop
Sales 5000000 5200000
Cost 3,000,000 4,000,000
2,000,000 1,200,000

Joebert should open a restaurant.

Nobu New York decides to expand and build another branch in Los Angeles. It is has two options: Beverly
Hills or Hollywood. The estimated sales of the two options(and their probabilities) are shown below as are
the associated costs of each option.

Beverly Hills Hollywood

Cost of Option 10,000,000 10,000,000

Probability of High Sales 0.5 0.75
Probability of Low Sales 0.5 0.25
Result of High Sales 20,000,000 20,000,000
Result of Low Sales 10,000,000 9,000,000

20,000,000 50%
Beverly Hills 15,000,000
10,000,000 50%

20,000,000 75%
Hollywood 17,520,000
9,000,000 25%

Beverly Hills Hollywood

Sales 15,000,000 17,520,000

Cost 10,000,000 10,000,000
Net Gain 5,000,000 7,520,000

Nobu should build its new branch at Los Angeles.

Candice is stuggling. She can't think of what to do with her money. A friend told her, "Yo, why don't you
start you own business?". She was so happy, thinking that her problem was already solved. She asked her
friend what business should she start. Her friend suggested to either start a clothing shop or a parlor. The
capital she needs to open a clothing shop is P500,000 and P400,000 for a parlor. During high sales, the
clothing shop yields an income of P5,000,000/yr and P4,000,000 for the parlor. During low sales, the
clothing shop yields an income of P500,000/yr and P600,000 fo the parlor. The probability of high sales is
50% and 50% for low sales.

5,000,000 50%
Clothing shop 2750000
500,000 50%

4,000,000 50%
Parlor 2300000
600,000 50%

C. Shop Parlor
Sales 2750000 2300000
Cost 500,000 400,000
2,250,000 1,900,000

Candice should start a clothing shop.

Jenniffer Lawrence auditioned for 3 movie roles. Out of the 3 movies she auditioned, she was booked for 2 roles as
the main character. After she received the schedules, she found out that the schedule for filming of the two movies
conflict with each other. She decided to drop one movie because of the schedule conflict. The table below
summarizes the amount of income she'll get for each movies.

If the movie is a If the movie is not a

Decision blockbuster blockbuster
Movie X $15,000,000 $10,000,000
Movie Y $18,000,000 $7,000,000
Probabilities 0.7 0.3

15,000,000 70%
Movie X 13500000
10,000,000 30%

18,000,000 70%
Movie Y 14700000
7,000,000 30%

Jenniffer Lawrence should pick movie Y.

for 2 roles as
e two movies
elow
Coco owns a coffee shop near AUF. Students love to stay on his coffee shop because of the authentic taste
of his coffee and the sweet smell of freshly baked cookies. But most of all, students keep on coming back
because the shop is open for 24hrs which means they can stay all night to study and burn the midnight
oil. Coco thinks of opening another branch near HAU or SPCF. The money he needs to open a new branch
is P3,000,000. During high sales, the shop near HAU will yield an income of P7,000,000/yr and
P6,000,000 for the shop near SPCF. During low sales, the shop near HAU will yield an income of
P3,000,000/yr and P3,500,000 for the shop near SPCF. The probability of high sales is 85% and 15% for
low sales.

7,000,000 85%
HAU 6400000
3,000,000 15%

6,000,000 85%
SPCF 5625000
3,500,000 15%

HAU SPCF
Sales 6400000 5625000
Cost 3,000,000 3,000,000
3,400,000 2,625,000

Coco should build his new branch near HAU.

A Company is currently working with a process, which, after paying for materials, labour and
so on brings a profit of Rs. 12,000. The company has the following alternatives: (i) The
Company can conduct research R1 which is expected to cost Rs 10,000 and having 90%
probability of success. IF successful, the gross income will be Rs 26,000. (ii) The company can
conduct research R2 , expected to cost Rs 6,000 and having a probability of 60% success. It
successful, the gross income will be Rs 24,000. Which alternative should the company pick?

26,000 90% Research Research

Research 1 23400 1 2
0 10% Sales 23400 14400
Profit 12000 12000
24,000 60% Cost 10000 6000
Research 2 14400 25400 20400
0 40%

The Company should do the Research No.1

Boojee Coffee operates a chain of five luxury coffee shops in Philippines. It is looking at two
options to increase revenues across the chain. The estimated impact of the two options on
sales (and their probabilities) are shown below: What should the company do?
Loyalty
Card Cut Prices
Cost 600,000 300,000
% of High Sales 0.6 0.8
% of Low Sales 0.4 0.2
Result of High sales 2,000,000 800,000
Result of Low Sales 1,500,000 500,000

2,000,000 60% Loyalty

Loyalty Card 1500000 Card Cut Prices
750,000 40% Sales 1500000 1300000
Cost 600000 300000
1,500,000 80% 900000 1000000
Cut Prices 1300000
500,000 20%

The company shout Cut prices instead of introducing the Loyalty Card
The manager of a small business has the opportunity to buy a fixed quantity of a new product
and offer it for sale for a limited time. The decision to buy the product and offer it for sale
would involve a fixed cost of P150,000. The amount that would be sold is uncertain but the
manager judges that There is a probability of 0.4 that sales will be poor with an income of
P80,000. There is a probability of 0.6 that sales will be good with an income of P240,000. For
an additional fixed cost of P20,000, the product can be sold for a trial period before a final
decision is made. The result of the trial will be poor with probability 0.55, good with
probability 0.45. with the sales of P70,000 and P300,000 respectively.

Buy
product Buy Product
Buy product 240,000 60% Offer to Trial Period
Offer to sale 176000 sale
80,000 40% Sales 176000 173500
Cost 150000 170000
Buy Product Trial 300,000 45% 26000 3500
Period 173500
70,000 55%

The manager should buy the product and offer it for sale.
A shipping company wants to decide whether to ship their product to France or China. If they
ship their product to France, the probability of getting a high sale of P20M is .80, while low
sale of P3M for .20. If they ship their product to China, the probability of getting a low sale of
P6M is 0.40, while high sale of P25M for .60. What should the shipping company pick?

20,000,000 80%
France 16600000
3,000,000 20%

25,000,000 60%
China 17400000
6,000,000 40%

The company should ship their product to China.

Linda's company needs to raise their sales, they decide whether to add another floor to the
company's building or to renovate the existing floors. Adding another floor costs P500,000
along with the furniture needed. Renovating the existing floor costs P300,000. Linda estimates
that the high sales will be P2M and low sales P1M with the probability of 0.7, 0.3 respectively
if she adds another floor, P1.5M and P800K with the probability of 0.6, 0.4 respectively if she
renovates the existing floors. What should Linda do?

Add Renovate
Add another 2,000,000 70% another existing
floor 1700000 floor floors
1,000,000 30% Sales 1700000 1220000
Cost 500000 300000
Renovate existing 1,500,000 60% 1200000 920000
floors 1220000
800,000 40%

Linda should add another floor to the company to raise sales.

The manager of a small business has the opportunity to make a limited edition of a new
product and offer it for sale. The decision to make the product and offer it for sale would
involve a cost of P250,000.The manager judges that There is a probability of 0.46 that sales will
be poor with an income of P440,000, There is a probability of 0.54 that sales will be good
with an income of P820,000. For an additional cost of P30,000, the company can advertise the
product on the media and the result will be either poor with probability 0.35, good with
probability 0.75. with the sales of P300,000 and P500,000 respectively.

Make the Make the

Make the product
product and 820,000 54% product Advertise
and
Sell 645200 and Sell
440,000 46% Sales 645200 480000
Cost 250000 280000
Make the product 500,000 75% 395200 200000
and Advertise 480000
300,000 35%

The manager should make the product and sell it.

A large company wants to decide whether to advertise their product to Canada or London. If
they advertise their product to Canada, the probability of getting a high sale of P1M is .56,
while low sale of P700K for .44. If they advertise their product to London, the probability of
getting a low sale of P800K is 0.34, while high sale of P1.2M for .66. Where should the
company advertise their product?

1,000,000 56%
Canada 868000
700,000 44%

1,200,000 66%
London 1064000
800,000 34%

The company should advertise their product to London.

A company wants to decide whether he should expand large or not expand at all. If he
expands large,the costs of expanding is P200,000 and the sales revenue would rise up to
P600,000 given the probability of 65%, and lower down to P150,000. If he doesnt expand, the
sales revenue would lower to P60,000 given the probability of 47%, and rise up to P500,000. If
the company would use decision trees to decide, what would they choose?

Not
600,000 65% Expand Expand at
Expand Large 442500 Large All
150,000 35% Sales 442500 266800
Cost 200000
500,000 47% 242500 266800
Not Expand at All 266800
60,000 53%

The company should not expand at all.

Polis is an expert musician who charged P100,000 for companies who invited him to play on
music concerts. Suddenly, 2 companies booked for Polis on the same day, Now Polis has to
decide which company he would go. The 1st company offered Polis 10% of their revenue if they
gain a high sale of P10M and the low sale is P1M. The 2nd company offered Polis 20% of their
revenue if they gain a high sale of P12M and the low sale is P3M. The probabilities are 0.66,
0.34, 0.23, 0.77 respectively. What company should Polis pick?

10,000,000 66% Company Company

Company 1 6940000 1 2
1,000,000 34% Sales 694000 1014000
Profit 100000 100000
12,000,000 23% 794000 1114000
Company 2 5070000
3,000,000 77%

Polis should pick Company 2

A company decided to launch a new product and advertise it. They will either choose to make
this product in rubber or leather. The costs are P400,000 and P600,000 respectively. If they
choose rubber, the expected sales is P657,000 and the low sales is P345,000. If they choose
leather, the expected sales is P800,000 and the low sales is P256,000. The probabilities are
0.62,0.38,0.59,0.41 respectively. What should the company use to make the product?

800,000 62% Rubber

Leather 593280 Leather
256,000 38% Sales 593280 529080
Cost 600000 400000
657,000 59% -6720 129080
Rubber 529080
345,000 41%

The company should launch the new product and make it in Rubber
Len Spam operates a luxury spa in Chicago. Len is looking for a way to increase revenues and
came up with two options. The estimated impact of the two options on sales (and their
probabilities) are shown below: What should Len do?
Prestige
Card Cut Prices
Cost 870,000 678,400
% of High Sales 0.63 0.52
% of Low Sales 0.37 0.48
Result of High sales 845,000 625,000
Result of Low Sales 487,000 369,000

845,000 63% Prestige

Cut Prices
Prestige Card 712540 Card
487,000 37% Sales 712540 502120
Cost 870000 678400
625,000 52% -157460 -176280
Cut Prices 502120
369,000 48%

Len Spam should introduce the Prestige Card to increase the revenue.
Oishi Crackers has a new branch in Marilao and is need of a new manager. An old friend of the
president came and asked for a salary of P100,000 and an experienced manager costs
P150,000. If they hire the old friend of the president, the mostlikely sales are P896,000 and
the low sales are P657,000. If they hire the experienced manager, the mostlikely sales are
P900,000 and the low sales are P700,000. The probabilities are 0.78,0.22,0.80,0.20
respectively. Who should Oishi Crackers hire?

Experienced
896,000 78% Old Manager
Old Friend 843420 Friend
657,000 22% Sales 843420 860000
Cost 100000 150000
Experienced 900,000 80% 743420 710000
Manager 860000
700,000 20%

Oishi Crackers should hire the old friend of the president.

The owner of Super Saiyan pool resort wants to add a new pool to the resort. The
management wants to decide on the length of the pool, the first length is 10m, it costs
P500,000 to build and the management expects that the sales will be P2,800,000 and the low
sales will be P500,000. the second length is 15m, it costs P800,000 to build and the
management expects that the sales will be P3,200,000 and the low sales will be P800,000. The
probabilities are 0.68,0.32,0.78,0.22 respectively. What is the length that the owner should
pick?

2,800,000 68%
10m 2064000 10m 15m
500,000 32% Sales 2064000 2672000
Cost 500000 800000
3,200,000 78% 1564000 1872000
15m 2672000
800,000 22%

The length that the owner of the Super Saiyan should pick is 15m.
Pike Company is a gaming company where they produce gaming equipment for gamers. They
already have their own product which the expected sales is P600,000 and the low sales is
P450,000. The company hired a new technician where he suggested to upgrade the old
version into a new one with an additional cost of P50,000. With this, the expected sales is
P1,000,000 and the low sales is P500,000. The probabilities are 0.46,0.54,0.40,0.60
respectively. Given the data, what should Pike Company do?

600,000 46% Old

Upgrade
Old version 519000 version
450,000 54% Sales 519000 700000
Cost 50000
1,000,000 40% 519000 650000
Upgrade 700000
500,000 60%

The Company should upgrade as suggested by the new technician.

Jane's Company specializes in fashion and cosmetics. Their expected sales is P650,000 and the
low sales is P500,000. Now Kate's company requested to merge with Jane's company, with this
the expected sales will rise to P800,000 and the low sales is P600,000. The probabilities are
0.72, 0.28, 0.68, 0.32 respectively. Should Jane's Company merge with Kate's company?

650,000 72%
Merge 608000
500,000 28%

800,000 68%
Dont Merge 736000
600,000 32%

Jane's Company shouldn't merge with Kate's Company

An art dealer has a client who will buy the masterpiece Rain Delay for $50,000. The dealer can
buy the painting now for $40,000 (making a pro_x000C_t of $10,000). Alternatively, he can
wait one day, when the price will go down to $30,000. The dealer can also wait another day
when the price will be $25,000. If the dealer does not buy by that day, then the painting will
no longer be available. On each day, there is a 2/3 chance that the painting will be sold
elsewhere and will no longer be available.

(a) Draw a decision tree representing the dealers decision making process.
(b) Solve the tree. What is the dealers expected proit? When should he buy the painting?
(c) What is the Expected Value of Perfect Information (value the dealer would place on
knowing when the item will be sold)?
PF = Profit
(a)
10000 PF 20000 PF

2/3 %
2/3 %
(b) The value is 10, for an expected pro t of $10,000. He should buy the painting immediately.

(c) With probability 2/3, the painting wil l be sold on the 1rst day, so should be bought immediately. With
probability 1/3(2/3) it wil l be sold on the second day, so should be bought after one day. Final ly, with probability
1/3(1/3) it wil l not be sold on the _x000C_rst two days, so should be bought after two days. The value of this is
2/3(10)+1/3(2/3)20+1/3(1/3)25 = 13.89. The EVPI is therefore $3,889.
 25000 PF

0 PF

ately. With
ly, with probability
he value of this is