Mrs Tintswalo Maila owns a metal press shop and is considering expanding her company to include an advanced machining process plant. If the plant is successful,
her company could realise an additional R200 000. profit. If it fails she could incur a loss of R180 000. Tintswalo, being the eternal pessimist, estimates a 60% chance that the new plant will fail. Her other option is to build a pilot plant to help her decide whether to build a complete facility. The pilot plant would cost R10 000 to build and Tintswalo estimates that the pilot has a 50-50 chance of success. It the pilot plant is successful then there is a 90% likelihood that the full plant will also be successful. If the pilot plant is unsuccessful then there is a 20% probability that the full plant will also be unsuccessful. Tintswalo is faced with the problem of having to decide whether to build a full plant directly from the onset or to first build a pilot plant and based on its performance, decide whether to build the full plant or not.
Make use of decision tree analysis to help Mrs Maila decide on the most appropriate action to take
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