Your firm faces considerable revenue uncertainty because you have to negotiate contracts with several customers. You forecast
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Your firm faces considerable revenue uncertainty because you have to negotiate contracts with several customers. You forecast a 20 percent chance that your revenue will be $200,000 a 30 % chance that your revenues will be $300,000 and a 50% chance that your revenues will be $500,000. Your costs are also uncertain because the prices of your supplies fluctuate considerably. You forecast a 40% chance that your costs will be $400,000 and a 60% chance that your costs will be $250,000. Use excel to set up a decision tree for your profit forecast (it does not matter whether costs or revenues come first). How many possible profit outcomes do you have? What is your expected profit?
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