Suggest what kenny should do using a decision tree

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Reference no: EM131404521

Kenny Videnia, a film producer, has to decide whether to bid for the film rights of a modestly successful novel. He believes that there is a 0.9 chance that he will be successful. If the bid is unsuccessful he will have to meet legal and administrative costs of $0.5m. If he is successful he has to decide whether to engage a big star for the main role. If he hires a big star the probability that the movie will be successful and make a profit of $50m is 0.3 and the chance that it fails and makes a loss of $20m is 0.7. If he doesn't hire a big star there is a 0.2 chance of the film making a profit of $30m and a 0.8 chance that it makes a loss of $10m.

(a) Suggest what Kenny should do using a decision tree.

(b) How sensitive is your advice to changes in the probability of the film making a profit if Kenny does not hire a big star?

Reference no: EM131404521

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