Draw a decision tree and construct a table

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Question - Almond Manufacturing Company has just developed a new product and is now considering two options: test-market the product at a cost of P50,000 or immediately market the product in the National Capital Region (NCR) at a cost of P200,000. Test marketing result could be either favorable with a probability of 0.60 or unfavorable with a probability of 0.40. After test marketing, Almond has to decide whether to market in the NCR or to drop the product. If test marketing results are favorable, management estimates that the probability of success in the NCR is 0.80; if unfavorable, the estimate success probability is only 0.40. Without the experience derived from a test-marketing, the probability of success in the NCR is 0.50. If the product us a success, the firm's expected return is P900,000; if unsuccessful, the firm expects to get only P300,000. What course of action should Almond follow?

Required -

a. Draw a decision tree and construct a table?

b. Determine the expected value for each decision and event nodes.

c. Which alternative is the best?

Reference no: EM133088691

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