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. CMI will collect 100%, 50% and 0% of amount purchased with probabilities 10%, 20% and 70% respectively. 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 Provide Decision Tree for CMI decision making consideration. What is the optimal EV?
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
