- This topic has 2 replies, 2 voices, and was last updated 13 years ago by
.
- Posts
Hi can anyone explain to me the decision tree,
i find the example in the latest articles extremely difficult to understand.
Please is there anyone who can explain to me how to work out the decision tree.I know we will not required to work out a decsiion tree in exam but at i need to know to be able to interprete it.
please if anyone could take an ex in the article strategic turbulence and explain the decision tree part in detail would be much appreciated.Please refer Business forecasting and strategic planning of SAjan11, and forecasting technique of https://opentuition.com/acca/p3/acca-p3-lectures/.
In P3 slide, there is one part is wrong (expected value at point B-> why plus two,rather than choose one only??). Pls confirm.
•? Expected value at E = 0.7 x 6 + 0.3 x 3 = $5.1 million •? Value at C is therefore: 5.1 – 2.5 = $2.6 million or $3 million. Therefore the decision at C should be not to upgrade. •? Expected value at F is $5.1 million (as for point E) •? Value at D is therefore: 5.1 – 2.5 = $2.6 million or $2 million. Therefore the decision at D should be to upgrade. •? Expected value at B is: 0.6 x (3 + 3) + 0.4 x (2 + 2.6) = 5.44 •? Value at A is therefore 5.44 – 5 = 0.44, or $Nil, if nothing done.
132
Don’t upgrade: income = $3 million
Low income of $3 million P = 0.3
Low income of $3 million P = 0.3
Don’t upgrade: income = $2 million
Low income of $2 million P = 0.4
High income of $3 million P = 0.6 Cost – $5 million
Do not invest
A
C
B
D
Upgrade. Additional cost = -$2.5 million
High income of $6 million P = 0.7
Upgrade. Additional cost = -$2.5 million
High income of $6 million P = 0.7
E
F
- You must be logged in to reply to this topic.