Renewable energy companies are faced with strategic decisions that have significant financial implications. In this assignment, you

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Question:

Renewable energy companies are faced with strategic decisions that have significant financial implications. In this assignment, you are tasked with analyzing a scenario in the renewable energy sector and applying decision tree analysis to determine the optimal course of action. Scenario: GreenPower Inc. is a leading renewable energy company considering two investment options: Option A and Option B. Each option has associated costs, probabilities, and potential outcomes.

Option A involves developing a new solar power plant.

Option B entails developing wind turbine technology. Market conditions play a significant role in the success of these investments. Based on market analysis, there are three possible scenarios: Favorable, Neutral, and Unfavorable.

The probabilities of these scenarios occurring are as follows:

Favorable Scenario: 0.4 probability

Neutral Scenario: 0.3 probability

Unfavorable Scenario: 0.3 probability

For each scenario, the potential outcomes for Option A and Option B are as follows:

Option A: Favorable Scenario: NPV of $40 million

Neutral Scenario: NPV of $20 million

Unfavorable Scenario: NPV of -$5 million

Option B: Favorable Scenario: NPV of $30 million

Neutral Scenario: NPV of $15 million

Unfavorable Scenario: NPV of -$3 million

Tasks: a. Construct a decision tree that represents the investment options, market scenarios, and potential outcomes.

b. Calculate the expected monetary value (EMV) for each investment option. Based on the EMV criterion, which investment option should GreenPower Inc. choose?

c. Discuss the limitations of using the EMV criterion in strategic decision-making and propose alternative decision criteria that can be considered.

d. Conduct a sensitivity analysis by varying the probabilities of Favorable, Neutral, and Unfavorable scenarios (any one combination is okay) for Option A and Option B. Discuss how changes in these probabilities would impact the optimal decision.