Decision tree analysis is used to determine a recommended decision alternative or an optimal decision strategy when a decision maker is faced with an uncertain and risk$-$filled pattern of future events. The goal of decision tree analysis is to identify the best decision alternative, or the optimal decision strategy, given information about the uncertain events and the possible payoffs of selections.

You are the chief operating officer $($COO$)$ at the Major Pharmaceutical Company $($MPC$).$ The chief executive officer $($CEO$)$ of MPC has asked you to review the company business plan for drug line development. You have been given a market research report which includes the state of the drug marketplace with probabilities and payoffs $($you will see this below and also on the $""$Data Analysis Template"" tab$).$

You are charged with presenting an analysis report of the plan, including recommending a course of action. The CEO wants to know the best immediate action, along with a backup action, and wants clarity on the basis of your recommendations.

You will consider the following possible active alternative actions: $1)$ develop a new drug $($exploration$)$ or $2)$ focus on modifications to an existing drug $($exploitation of new applications$).$ Within these two alternatives, there are two possible states for market conditions. You must consider the probability of success and the payoffs to determine the course of action based on the calculated expected values.

You have been provided with the market research report data.

You are to use the data from the market research to complete the task, including payoff boxes on a decision tree diagram. Then, you may use the lower table on the template to show how you determined expected values for each state of nature node.

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Use the above scenario to answer theses questions

C$.$ Report how you analyzed the data using decision tree analysis by doing the following:

$1.$ Complete a decision tree diagram, including each of the following:

$$ state$-$of$-$nature nodes

$$ calculated payoffs, each expressed out to two decimal places

$$ expected values, each expressed out to two decimal places

Note: You can submit the completed decision tree diagram using a separate attachment or the optional template on the attached $$Decision Tree Analysis Resources.$$

Note: Refer to $$Prepare for the Performance Assessment Task $2$ in the course of study to see examples of acceptable output.

$2.$ Justify why decision tree analysis is the appropriate analysis technique, including relevant details from the scenario to support your justification.

D$.$ Summarize the implications of your decision tree analysis by doing the following:

$1.$ Explain the role of probabilities and the role of demand for each branch.

$2.$ Explain how the expected value of each node is determined based on payoffs.

Note: Refer $$Prepare for the Performance Assessment Task $2$ in the course of study to see an example of an acceptable discussion of results.

$3.$ Discuss one limitation of each of the following:

$$ the data elements

$$ the decision tree analysis

E$.$ Recommend a course of action that addresses the business question from part A and is based on the results of your decision tree analysis.