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Decision Tree Example

1. The document presents a decision tree to analyze alternative power sources for a processor, comparing electricity, gas, and doing nothing. 2. For the original analysis, electricity had the highest expected value at $6.75 million, so electricity was recommended. 3. The analysis was then modified to include a chance of failure and modification for the electricity option. 4. With the modification, gas had the highest expected value at $13.1 million, so gas was recommended as the best option.

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muhammad saad
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53 views2 pages

Decision Tree Example

1. The document presents a decision tree to analyze alternative power sources for a processor, comparing electricity, gas, and doing nothing. 2. For the original analysis, electricity had the highest expected value at $6.75 million, so electricity was recommended. 3. The analysis was then modified to include a chance of failure and modification for the electricity option. 4. With the modification, gas had the highest expected value at $13.1 million, so gas was recommended as the best option.

Uploaded by

muhammad saad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Name Muhammad Sa'ad

ID Student 29121434

DECISION TREE

Alternative Power Source for Processor,


Electricity & Gas?

Electricity Powered
Gas Powered Source Do Nothing
Source

Successful Failure Successful Failure

Prob: Prob: Prob: Prob: Prob:


75% 25% 60% 40% 100%

Profit Loss Profit Loss $ 0 Investment, $ 0


+ $ 10.000.000 - $ 3.000.000 + $ 15.000.000 - $ 7.000.000 Revenue

Expected Elec Expected Gas


Expected Failure Expected Failure
Succes Succes
25% x - $ 3 M 40% x - $ 7 M
75% x $ 10 M 60% x $ 15 M
= - $ 0.75 M = - $ 2.8 M
= $ 7.5 M =$9M

= $7.5 M - $0.75 M = $ 9 M - $2.8 M $ 0 Investment,


= $ 6.75 M = $ 6.2 M $ 0 Revenue

- The Best Decision recommended is Electricity Power Sourced

Alternative Power Source for Processor,


Electricity & Gas & modified?

Electricity Powered
Gas Powered Source Do Nothing
Source

Successful Failure Successful Failure

Prob: Prob: Prob: Prob: Prob:


75% 25% - Loss $ 3.000.000 60% 40% 100%

Profit Profit Loss $ 0 Investment, $ 0


Modify
+ $ 10.000.000 + $ 15.000.000 - $ 7.000.000 Revenue

Successful Failure Successful Failure

Prob: Prob: Prob: Prob:


30% 70% 80% 20%
Profit Loss Profit Loss
+ $ 6.000.000 - $ 7.000.000 + $ 10.000.000 - $ 12.000.000
Expected Failure Expected Failure Expected Failure
Expected Failure
Modified Succes Modified Failure Modified Failure
Modified Succes
A. 25% x - $ 3 M A. 25% x - $ 3 M A. 25% x - $ 3 M
A. 25% x - $ 3 M
= - $ 0.75 M = - $ 0.75 M = - $ 0.75 M
= - $ 0.75 M
B. 30% x + $ 6M B. 70% x - $ 7 M B. 20% x - $ 12 M
B. 80% x + $ 10M
= $ 1.8 M = - $ 4.9 M = - $ 2.4 M
=$8M
C = A+B C = A+B C = A+B
C = A+B
= - $ 0.75 M + $ 1.8 = - $ 0.75 M + - $ = - $ 0.75 M + - $
= - $ 0.75 M + $ 8 M
M 4.9 M 2.4 M
= $ 7.25 M
= $ 1.05 M = - $ 5.65 M = - $ 3.15 M

Expected Elec Expected Gas


Succes = $1.05 M - $5.65 M Succes = $7.25 M - $3.15 M
75% x $ 10 M = - $ 4.6 M 60% x $ 15 M = $ 4.1 M
= $ 7.5 M =$9M

$ 0 Investment,
$ 2.9 M $ 13.1 M
$ 0 Revenue

- The Best Decision recommended is Electricity Gas Sourced

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