Decision Tree Problem
You will be required to submit your work as a hard copy andalso to submit a photograph or scan of it via turnitin by the deadline. Refer to the seminar notes for week 3 for further information.
Don’t forget to attach a declaration form to your work.
You are reminded of the requirements of the assignment as which as well as general guidance about the completion of the work which has previously been presented to you in lectures; broadly that your answer should be on one piece of paper – A3 (or two sheets of A4 stuck together) and that all calculations should be shown on the branches of the tree and should be clear and legible. Any calculations shown elsewhere else will lose you marks.
All the information you need is included in the question; some information may not be immediately obvious to you and will need to be imputed.
You should complete your assignment with a succinct statement of the action or actions you recommend together with the expected value of these actions. Your entire analysis of the problem should appear on the decision tree and any other calculations will be ignored and consequently cost you marks.
You must also produce a reflective statement of about 250 words expressing your learning experience from the assignment.
You should make every effort to present neat and clear solutions as untidy, unclear or illegible solutions may lead to errors or difficulty in interpreting your solution.
The assignment accounts for 30% of the marks available for the module made up of 25% for a solution to the problem using a decision tree, and a further 5% for the reflective statement. of about 200 words expressing your learning experience from the assignment.
Here is the question you are required to answer;
Decision Tree Problem
A company needs to replace its current production plant which is worn out and is considering three possibilities. The first choice is to replace the plant with new technology to produce the same product, the second is to build a plant with new technology to produce a superior product, and the third is to build a plant, again using new technology, which can produce either the existing or the new, superior, product. Their respective costs are; £4.23 million, £7.23 million and £12.9 million.
At present two movements will impact on the decision; customer choice and a Bill in Parliament which supports the new and safer product, but will not exclude the old.
Analysts have made the following estimates.
If Parliament favours the new product then the income generated for each of the following 5 years will be £3.26 million and £2.07 million for the new and old products respectively.
If the Bill fails to be enacted then the corresponding values are £2.36 million and £3.19 million.
All these estimates are in present day values.
The probability of the Bill becoming law is estimated at 43.8% and if that happens, the probability of customers adopting the new product is 67.3%. If the Bill fails the probability of customers adopting the new product is 33.6%.
Help the company make a decision by constructing and analysing a decision tree for the problem. Complete your assignment with a succinct statement of the action or actions you recommend together with the expected value of these actions.
