Risk and Uncertainty

I am sorry for not replying earlier - I check for questions twice a day, but somehow I must have missed this one :-( I do not know which book you are referring to (I only have the current edition of the BPP Revision Kit, which does not include this question - probably because (as you will know if you have watched my lectures) you can no longer be asked to actually draw a decision tree even though you can be tested that you understand them). However this was a past exam question (in the days when you could be asked to draw a tree) and so I do have the question and the answer is indeed correct. Your mistake is that the capital cost of 360,000 is only payable once - not each year. Therefore the expected value is (3.591 x 3) - .360 = 10.413

You are welcome :-)