A consultant estimated that setting up a new store will cost $600,000, developing online shopping will cost $200,000 and expanding the current store will cost $300,000. The potential revenues in the future 3 years together with the estimated probabilities are given in the Table below:
Option
Revenue ($)
Probability (%)
Option 1
1,100,000
30
700,000
70
Option 2
700,000
20
500,000
60
400,000
20
Option 3
800,000
55
600,000
45
Use these data and the decision tree analysis technique to determine which of the options is preferable. Your solution should include a well-labelled decision tree, all relevant calculations, your decision and a clear justification of your decision. [NOTE: it is not necessary for the explanation to be lengthy, but it must be correct and easily understood.] (10 marks)
Marking rubric for question 1:
Task
0
1
2
3
4
Construction of decision tree
Decision tree not drawn or drawn incorrectly
Main items of decision tree present, but all the nodes, branches, and payoffs are incorrect
Main items of decision tree present, but any two of the nodes, branches, and payoffs are incorrect
Main items of decision tree present, but any one of the nodes, branches, or payoffs is incorrect
All aspects of the decision tree are correct
Calculations
No calculations or answers given
Incorrect answers for all three options with correct methods applied
Correct answers, with sufficient workings shown for one option AND incorrect answers for the other two options
Correct answers, with sufficient workings shown for two options AND incorrect answers for the other one options
Correct answers, with sufficient workings shown for all three options
Statement of decision
Incorrect statement of decision based on previous analysis or statement not given
Correct statement of decision based on previous analysis with no justification
Correct statement of decision based on previous analysis with correct justification
NA
NA
QBM120 Assignment 2 Page 3 of 6
Question 2 (27 marks)
The following data represent the annual number of employees in a certain company for the years 1996 – 2015.
Year
Number
Year
Number
Year
Number
1996
1400
2003
2040
2010
1650
1997
1500
2004
2060
2011
1730
1998
1610
2005
1800
2012
1880
1999
1600
2006
1730
2013
2000
2000
1740
2007
1770
2014
2100
2001
1920
2008
1900
2015
1980
2002
1950
2009
1820
a) Produce a time series plot of the data. Examine the graph and comment on the trend, cyclic and random variation of the data.
(4 marks)
b) Using the relevant information, construct a table to report the forecast number of employees in the company from 2009 to 2015 using the four methods below. Show the calculation steps for forecasting the numbers in 2009 and 2010.
? Naive method.
? 5-year moving average.
? 3-year weighted average with a weight of 0.5 applied to the most recent observation, a weight of 0.3 applied to the second most recent observation and a weight of 0.2 applied to the third most recent observation.
? Exponential smoothing with a smoothing coefficient of 0.6. The forecast value in Year 2008 is given as 1830.
(13 marks)
c) Calculate the MSE and MAD for each of the four methods in (b) using the actual and forecast values from 2009 to 2015. Which forecast method is the best? Explain your answer.
(10 marks)

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Posted on May 3, 2016Author TutorCategories Question, Questions