Calculate the expected value of each outcome and show your calculations
Option #2: New Versus Used Car Decision Tree
Build a decision tree to help you decide if you want to purchase a new car or a used car. The biggest concern or risk with purchasing a used car is the potential need for repairs and not knowing about any previous problems the car might have had. There is a 40% chance that a used car will need to be repaired within a one-year period; however, there is a 90% chance that the new car will not need any repairs during the same period. The cost for a used car is $7,500, and the cost for a new car is $15,000.
Use the information in the table below to decide whether you should buy a used car versus a new car. Pick the decision with the lower investment required.
2. Create a decision tree to show outcomes for each decision node using the SilverDecisions website (http://silverdecisions.pl/SilverDecisions.html?lang=en(Links to an external site.)). Note: While the SilverDecisions tool is intuitive, you can find a manual at http://silverdecisions.pl/(Links to an external site.).
3. Calculate the expected value of each outcome and show your calculations (Probability x Impact).
4. Export your decision tree as a .png file and save it on your computer.
5. Explain the best option based on the outcome and why.
| Cost to buy a new car | $15,000 |
| Cost to buy a used car | $7,500 |
| Probability of not having any repairs within one year | 90% |
| Probability of repairing a used car within one year | 40% |
| Cost of repairs for new car | $5,000 |
| Cost of repairs for used car | $9,000 |
Be sure to properly organize your writing and include a cover page, an introduction, headings / subheadings for the body of your work, analysis and recommendations, a conclusion, an appendix, and a list of references. Consult this assignment template for a more complete list of requirements: http://csuglobal.libguides.com/ld.php?content_id=21534702 (Links to an external site.).
Your response should be 1-2 pages in length, including your decision tree, and conform to the CSU-Global Guide to Writing & APA (Links to an external site.). Copy and paste your exported SilverDecisions .png file into a Microsoft Word document for submission.
Answer preview to calculate the expected value of each outcome and show your calculations
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