The Mexton Machines Company Case Study

Question 1
Apply decision tree analysis to model the decision problem facing Mexton
Machines and advise the company on the policy or strategy that maximizes
expected Net Present Value (NPV). Clearly state any assumptions you have
made.
Guidance notes:
• Present your decision tree diagrams, clearly showing all probabilities and
net present values at the end of the branches
• Follow the conventions of constructing decision trees, such as the basic
shapes distinguishing decision nodes from chance nodes
• Clearly show all your workings explain/justify your recommendations
Question 2
Conduct a sensitivity analysis on your model and explain the implications to
the Mexton Machines decision problem.
Guidance notes:
• Justify your selection of input variable(s) used as the basis of your sensitivity
analyses
• Clearly show and explain the impact of your selected variables, with the aid
of graphical representations
Question 3
Discuss the strengths and limitations of your analysis in the context of the the
problem faced by Mexton Machines. In other words, outline the strengths and
limitations of your decision tree analysis in terms of the usefulness of the
guidance that it would provide to Mexton Machines managers

 

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