Question: QUESTION TWO [25] Decision Trees are excellent tools for helping you to choose between several courses of action. They provide a highly effective structure within

QUESTION TWO [25] Decision Trees are excellent

QUESTION TWO [25] Decision Trees are excellent tools for helping you to choose between several courses of action. They provide a highly effective structure within which you can lay out options and investigate the possible outcomes of choosing those options. They also help you to form a balanced picture of the risks and rewards associated with each possible course of action. Consider the following scenario: John Hlengwa is considering building a factory, where he intends to manufacture wooden indigenous furniture for both the local and international markets. He has several options including: Build a large factory 16 NOAH . Build a small factory Do nothing . 2.1 Construct a decision tree for the above, indicating decision nodes and state-of-nature nodes. (5) 2.2 Given the following information: Alternatives Favourable Market Unfavourable Market Probability R R 500 000 -220 000 65% Construct a Large factory Construct a Small 200 00 -50 500 35% factory Do Nothing 0 0 Construct a solved decision tree (diagram) showing Expected Monetary Value (EMV) for John Hlengwa. Indicate which option would be most profitable. (20)

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