7.2 Data Assignment: Decision Tree

You are a business analyst tasked with evaluating a decision tree to determine the best course of action for a firm considering whether to pay a dividend. you will solve for the conditional probabilities, net costs, and expected values at each node.

The decision tree includes multiple nodes, some with question marks representing unknown probabilities and costs. Your goal is to complete the following:

• Solve for the missing probabilities at each decision node using conditional probability.
• Calculate the total cost at each node by summing the relevant costs from previous branches.
• Determine the net cost by subtracting costs from revenues at each node.
• Solve for the conditional probability of arriving at each node in the tree.
• Calculate the expected value at each decision point by multiplying the nodes probability by the net cost.

The second tab of the Excel file contains a more advanced decision tree exercise, where you will apply the Gini Index to determine the first decision split in a firm’s dividend decision. This might be more difficult, but give it your best shot and refer to your PowerPoint from this module’s readings and resources page and notes to help guide you in solving the problem using the Gini Index.

Your deliverables should include the following:

• Excel File: This should contain all your calculations for probabilities, costs, net costs, conditional probabilities, and expected values at each node. Ensure that both tabs are completed.
• Brief Write-Up: In the second tab, include a short explanation of how you solved the Gini Index and what the first decision split represents.
• Video: This should contain a summary of your Excel document, along with how you found and calculated your numbers and the significance of each.