Reference no: EM132530528

Jocelyn, a CEO, is trying to decide whether to implement a new strategy for her organization. She has considered various qualitative factors, and would like to complement these factors with an objective analysis that relies on probabilities and expected values.

Jocelyn has compiled the following information

1. If she does nothing, profits will remain where they are currently.
2. If she implements the strategy, and it is successful, profit will increase by $80,000. If she implements the strategy, and it is a failure, profit will decrease by $50,000.
3. Jocelyn has determined that the probability that the strategy will either succeed or fail, and there is no "in between." She assesses the probability of fail as 25%.
4. Ryan, a consultant, has offered his analysis of the scenario. His analysis involves providing a "favorable" (which signals success) or "unfavorable" (which signals failure) rating. 
5. Ryan says: "In past similar instances, when success occurred, I identified the scenario as "favorable" 82% of the time." Ryan also says: "In past similar instances, when failure occurred, I identified the scenario as "unfavorable" 90% of the time."

Required

Question 1. Prepare decision tree that clearly provides an objective analysis of the options. The decision tree should clearly denote expected values, probabilities, and best courses of action (where applicable).

Note: Round dollar values to the nearest dollar, and probabilities should be rounded to three decimal places (i.e., 0.212 or 21.2%).

Question 2. In addition to the tree itself, calculate the expected value of the information provided by the consultant.