Evaluate probability using decision tree analysis

Reference no: EM13112246

The management of a bank in the Caribbean was concerned about potential loss that might happen in event of a hurricane. Bank estimated that loss from one of these storms could be as much as $100 million including losses due to interrupted service and customer relations. One project bank is considering is installation of emergency power generator at its operations headquarters. Cost of emergency generator is $800,000, and if it is installed no losses from this kind of storm will be incurred. Though, if generator is not installed, there is a 10% chance that power outage will happen during next year. If there is the outage there is 5% probability that resulting losses will be very large or approximately $80 million in lost earnings. Alternatively, it is evaluated that there is a 95% probability of only slight losses of around $1 million. Using decision tree analysis, determined whether bank must install new power generator.

Reference no: EM13112246

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