A. EMV for Product A = $100,000; EMV for Product B = $150,000; Make Product B
B. EMV for Product A = $50,000; EMV for Product B = $70,000; Make Product B
C. EMV for Product A = $670,000; EMV for Product B = $77,500; Make Product A
D. EMV for Product A = $1,050,000; EMV for Product B = $225,000; Make Product A
The correct answer is C.
Answer C is correct because the expected value of the Product A decision node is greater than that of the Product B decision node. The expected value of the decision node is determined by factoring the path value by the probability of occurrence for the chance node and then summing the EMV for all chance nodes on the decision node. Because this decision tree reflected the initial investment and profit expected from each chance node, the correct decision is the decision node offering the greatest EMV for the decision.
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