This worksheet provides information for a company to decide whether to invest in new stores, old stores, or do nothing. It lists the costs, probabilities of a strong or weak economy, and expected returns for each option. Students are asked to design a decision tree and assess which option is most convenient based on the information given.

1. UNIDAD EDUCATIVA BILINGUE NUEVO MUNDO
WORKSHEET
FOR ING 01 VER 15 04 11
Teacher: Alex Arancibia/Verónica Icaza Name: ……………………………
Course: 2nd Bach Section:…………………………
Subject: Business & Management Date: __ July, 2012
Activity: Decision trees
A company wants to know which of the following three decisions it should make. Based on the
information provided, design a decision tree and assess which is the most convenient decision.
Decision Probability of a strong economy Probability of a strong economy
Cost Euros
Points (80% chance) and the expected value (20% chance) and the expected value
Invest in New If the economy is strong 3 Million return If the economy is weak 1 million return
2 Million
stores (probability of a strong economy is 80%) (probability of a weak economy is 20%)
Invest in Old If the economy is strong 1Million return If the economy is weak 200,000 return
150,000
stores (probability of a strong economy is 80%) (probability of a weak economy is 20%)
If the economy is strong 200,000 return If the economy is weak 75,000 return
Do nothing None
(probability of a strong economy is 80%) (probability of a weak economy is 20%)
Approved by: ________________________ Date: 14jul2012 # of copies: ____ Pages: 1/__