Question -
Dwayne Whitten, president of Whitten Industries, is considering whether to build a manufacturing plant in north Texas. His decision is summarized in the following table:
|
Alternatives
|
Favorable Market
|
Unfavorable 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
|
a) Construct a decision tree.
b) Determine the best strategy using expected monetary value (EMV).
c) What is the expected value of perfect information (EVPI)?