Question: please make a decision tree CMI has just received a credit request from a new customer who wants to purchase a copying machine. As input
please make a decision tree
CMI has just received a credit request from a new customer who wants to purchase a copying machine. As input unto decision of whether to grant credit, CMI has made the following estimates and assumptions:
If CMI denies the credit, there is 20% chance the customer will buy with cash anyway.
If CMI grants credit, there is 70% of customer will have a good credit risk.
If CMI grants credit and customer is a good credit, CMI will collect 100% of purchase price.
If CMI grants credit and customer is a bad risk, CMI has two options.
1.CMI will collect 100%, 50% and 0% of amount purchased with probabilities 10%, 20% and 70% respectively.
2.CMI will vigorously pursue the collection of the amount purchased, regardless the amount collected eventually. Under this option CMI will collect 100%, 50% and 0% of amount purchased with probabilities 30%, 50% and 20% respectively.
The copy machine sells for $8,000 and the cost of copy machine is $5,000. Non vigorous enforcement has no cost, while vigorous enforcement cost $2,000
a.Provide Decision Tree for CMI decision making consideration.
b.What is the optimal EV?
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