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
|
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
|
1. Construct a decision tree.
2. Determine the best strategy using expected monetary value (EMV).
3. What is the expected value of perfect information (EVPI)?