In this assignment, you will build on the concepts of conditional probability from Module 3 to solve
for the probabilities at decision nodes in a decision tree. By completing this exercise, you will deepen
your understanding of decision analysis and how probabilities impact expected outcomes in
business decisions.
This assignment is structured to help you calculate probabilities, costs, and expected values at each
node while also introducing the concept of using the Gini Index to solve decision-making problems.
Scenario
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. Using the provided decision tree template /XLSX). & 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 node’s 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.
You will be using Microsoft Excel and submitting your spreadsheet as a graded deliverable.
Submission
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.
Submit your completed written document and the accompanying clean, well-organized Excel file.
Save your assignment using a naming convention that includes your first and last name and the activity number (or description). Do not add
punctuation or special characters.
