Discuss the below:
Q: Karen Villagomez, president of Wright Industries, is considering whether to build a manufacturing plant in the Ozarks. Her decision is summarized in the following table:
|
Alternatives
|
Favourable Market
|
UnFavourable Market
|
|
Build large plant
|
$400,000
|
-$300,000
|
|
Build small plant
|
$80.000
|
-$10.000
|
|
Don't build
|
$0
|
$0
|
|
Market probabilities
|
0.4
|
0.6
|
Construct a decision tree. Determine the best strategy using expected monetary value (EMV). What is the expected value of perfect information (EVPI)?