QABD JNTUK MID 1 PPTS

1. School OF MANAGEMENT
STUDIES,KAKINADA
Topic: DECISION TREE
SAYYEDISSAHAQAZEEM
14021E0019
1ST-SEM
MBA

2. 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.

3. At present decision depends upon future event and
the alternatives of a whole sequence of decision in
future are effected by the presentation as well as future
events.
Those consequences of each decision is influenced by
outcome of chance event.

4. While constructing the decision tree,some important
steps should be considered:
Define investment.
Identify desire alternative.
Draw a decision tree.
Analysis the data.

5. ?A company is consulting a new equipment. The net cash
flow of the equipment having estimation as given below.
The equipment life is estimated to be 2 years.(in rupees)
YEAR1 PROFITABILITY YEAR2 PROFITABILITY
N.C.F 10,000 0.4 8000
12,000
0.5
0.5
N.C.F 12,000 0.6 16,000
20,000
0.4
0.6
The cost of equipment is Rs.20,000 and comparing cost
of capital is 12%. Use the decision tree report whether
equioment is brought (or) not?

6. Cost year1 profit year2 profit Σnpv Σp Σ(p x npv )
8000 0.5 -4694 0.2 -938.8
10,000 0.4
-20,000 12,000 0.5 -1506 0.2 -301.2
16,000 0.4 3468 0.2 832.32
12,000 0.6
20,000 0.6 6556 0.36 2360.16
+1952.48