Business decision

QT – May 2019 – L1 – Q3 – Probability

Draw a decision tree and determine the optimal strategy for managing the cost of an art exhibition.

Question

The Business Manager of Omaya Art Gallery has rented a hall to display the artworks of the artists of the gallery. She is considering organizing an exhibition of a number of rare painting masterpieces. In the past, only 70% of the paintings were sold in the first week. Moreover, if no painting is sold in the first five (5) days, the exhibition could be extended for another two (2) days but only 20% of the paintings would be sold.

The cost of the exhibition is GH¢500 per day. The manager estimated that in case she does not make any sales, she will have to pay GH¢15,000 to cover the costs of renting the exhibition hall for the same period.

Required: a) Draw a decision tree representing the Business Manager’s decision-making process. (8 marks)

b) Calculate the expected monetary cost of each decision node. (6 marks)

c) Determine the Business Manager’s optimal strategy. (6 marks)

Answer

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Tags: Business decision, Cost Analysis, Decision tree, Expected Monetary Cost, Optimal Strategy
Level: Level 1

Topic: Probability
Series: MAY 2019

QT – Nov 2015 – L1 – Q2 – Probability

Construct a decision tree and calculate the expected monetary value for Jodoo Company Ltd’s expansion options.

Question

Jodoo Company Ltd had a new, large order for its product and thinks this may herald an expansion of the market and thus its sales and profits. Jodoo Ltd could move the factory to a new and larger site (cost: GHS 1 million), expand the existing factory (cost: GHS 0.25 million), or meet the new order by overtime (cost: GHS 0.08 million).

Three likely sales increase scenarios were proposed:

40% increase in sales with a probability of 0.2
10% increase in sales with a probability of 0.6
0% increase in sales with a probability of 0.2

The expected profits under each option are:

Sales Increase %	New Factory (GHS million)	Expanded Factory (GHS million)	Overtime (GHS million)
40%	6	3.5	1.5
10%	2.5	2.5	1.5
0%	0	0	0

Required:
(i) Construct a decision tree to represent the various scenarios of expansion. (6 Marks)

(ii) Calculate the expected monetary value (EMV) of each node of your tree. (8 Marks)

(iii) Advise the company on how to react to this opportunity. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business decision, Decision tree, Expected Monetary Value, Payoff table, Probability
Level: Level 1

Topic: Probability
Series: NOV 2015

QT – May 2019 – L1 – Q3 – Probability

Draw a decision tree and determine the optimal strategy for managing the cost of an art exhibition.

Question

Required: a) Draw a decision tree representing the Business Manager’s decision-making process. (8 marks)

b) Calculate the expected monetary cost of each decision node. (6 marks)

c) Determine the Business Manager’s optimal strategy. (6 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business decision, Cost Analysis, Decision tree, Expected Monetary Cost, Optimal Strategy
Level: Level 1

Topic: Probability
Series: MAY 2019

QT – Nov 2015 – L1 – Q2 – Probability

Construct a decision tree and calculate the expected monetary value for Jodoo Company Ltd’s expansion options.

Question

Three likely sales increase scenarios were proposed:

40% increase in sales with a probability of 0.2
10% increase in sales with a probability of 0.6
0% increase in sales with a probability of 0.2

The expected profits under each option are:

Sales Increase %	New Factory (GHS million)	Expanded Factory (GHS million)	Overtime (GHS million)
40%	6	3.5	1.5
10%	2.5	2.5	1.5
0%	0	0	0

Required:
(i) Construct a decision tree to represent the various scenarios of expansion. (6 Marks)

(ii) Calculate the expected monetary value (EMV) of each node of your tree. (8 Marks)

(iii) Advise the company on how to react to this opportunity. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business decision, Decision tree, Expected Monetary Value, Payoff table, Probability
Level: Level 1

Topic: Probability
Series: NOV 2015

Question Tag: Business decision

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QT – May 2019 – L1 – Q3 – Probability

Draw a decision tree and determine the optimal strategy for managing the cost of an art exhibition.

QT – Nov 2015 – L1 – Q2 – Probability

Construct a decision tree and calculate the expected monetary value for Jodoo Company Ltd’s expansion options.

QT – May 2019 – L1 – Q3 – Probability

Draw a decision tree and determine the optimal strategy for managing the cost of an art exhibition.

QT – Nov 2015 – L1 – Q2 – Probability

Construct a decision tree and calculate the expected monetary value for Jodoo Company Ltd’s expansion options.

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QT – May 2019 – L1 – Q3 – Probability

Draw a decision tree and determine the optimal strategy for managing the cost of an art exhibition.

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QT – Nov 2015 – L1 – Q2 – Probability

Construct a decision tree and calculate the expected monetary value for Jodoo Company Ltd’s expansion options.

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QT – May 2019 – L1 – Q3 – Probability

Draw a decision tree and determine the optimal strategy for managing the cost of an art exhibition.

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QT – Nov 2015 – L1 – Q2 – Probability

Construct a decision tree and calculate the expected monetary value for Jodoo Company Ltd’s expansion options.

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