Decision Tree and Value of Information, 2-3 pages excel spreadsheet help

User Generated

YnjlreTvey

Business Finance

Description

Scenario: You are a consultant who works for the Diligent Consulting Group. You have learned about three different investment opportunities and need to decide which one is most lucrative. Following are the three investment options and their probabilities:

Option A: Real Estate development. This is a risky opportunity with the possibility of a high payoff, but also with no payoff at all. You have reviewed all of the possible data for the outcomes in the next 10 years and these are your estimates of the cash payoff and probabilities:

Required initial investment: $0.75 million

High NPV: $5 million, Pr = 0.5

Medium NPV: $2 million, Pr = 0.3

Low NPV: $0, Pr = 0.2

Option B: Retail franchise for Just Hats, a boutique-type store selling fashion hats for men and women. This also is a risky opportunity but less so than Option A. It has the potential for less risk of failure, but also a lower payoff. You have reviewed all of the possible data for the outcomes in the next 10 years and these are your estimates of the payoffs and probabilities:

Required initial investment: $0.55 million

High NPV: $3 million, Pr = 0.75

Medium NPV: $2 million, Pr = 0.15

Low NPV: $1 million, Pr = 0.1

Option C: High Yield Municipal Bonds. This option has low risk and is assumed to be a Certainty. So there is only one outcome with probability of 1.0:

Required initial investment: $0.75 million

NPV: $1.5 million, Pr = 1.0

Develop an analysis of these three investments, and determine which of them you should choose. Be sure to account for cash paid for each of the three alternatives. If you do not recall how to do this, review the practice exercises in the Background page. Do your analysis in Excel using the Decision Tree add-in or SmartArt graphic, as suggested in the Background page.

Write a report to your private investment company and explain your analysis and your recommendations. Provide a rationale for your decision.

Excel Analysis

Conduct accurate and complete Excel analysis using decision tree add-in.

Written Report

  • Length requirements: 2–3 pages minimum (not including Cover and Reference pages)
  • Provide a brief introduction to/background of the problem.
  • Written analysis that supports Excel analysis and provides thorough discussion of assumptions, rationale, and logic used.
  • Complete, meaningful, and accurate recommendation(s).
  • Write clearly, simply, and logically. Use double-spaced, black Verdana or Times Roman font in 12 pt. type size.
  • Have an introduction at the beginning to introduce the topics and use keywords as headings to organize the report.
  • Avoid redundancy and general statements such as "All organizations exist to make a profit." Make every sentence count.

User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

Attached.

Running Head: BUSINESS INVESTMENT DECISION

Business Investment Decision
Name
Instructor
Institutional Affiliation
Date

1

BUSINESS INVESTMENT DECISION

2

Introduction and background of the problem
Making an investment decision is often time very challenging and requires a thorough
analysis of the various business opportunities and their corresponding returns or expected values.
It is important for business analysts to evaluate the different investment alternatives to come up
with the right alternative that can yield high returns for the company (Chandra, 2002). To come
up with the right alternative, business analysts must compare the required initial investment with
the expected returns to be able to choose the one with the highest expected returns for the
company. In the case scenario presented above, Diligent Consulting Group must focus on the
project with the highest returns for the company. In this instance, therefore, the...


Anonymous
Very useful material for studying!

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Similar Content

Related Tags