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.
1. 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 (). Note: While the SilverDecisions tool is intuitive, you can find a manual at .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
|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.
Your response should be 1-2 pages in length, including your decision tree, . Copy and paste your exported SilverDecisions .png file into a Microsoft Word document for submission.