IB Business Management MCQ QuizIB_Business_Management_Decision t

Identify the purpose of a decision tree.

• To compare the driving forces against the restraining forces of a decision

• To determine the root cause of a problem being faced by a firm

• To illustrate the sequence of activities and schedules of a project

• To quantify possible outcomes based on the probability of their occurrence

When preparing a decision tree, a square represents a _________ node, while a circle represents a _________ node.

• Chance, decision

• Decision, chance

• Decision, restraining

• Probability, value

Project X has a 65% probability of success and a 35% probability of failure. If successful, the expected return is $650,000. If the project fails, the expected return is $200,000. Calculate the expected return of Project X.

• $460,000

• $492,500

• $525,000

• $557,500

Using the data below, calculate the net expected return of the investment. Outcomes Probabilities Costs/Revenues ($) Investment cost (32,000,000) Highly successful 45% 65,000,000 Average success 35% 45,000,000 Failure 20% 18,000,000

• $10.66 million

• $14.00 million

• $16.60 million

• $25.55 million

Identify a limitation of decision trees as a decision-making tool.

• Qualitative considerations

• Qualitative considerations

• Risk analysis of multiple outcomes

• Visual representation of a decision

Using the data below, calculate the country with the highest net expected return. Country Outcomes Probabilities Costs/Revenues ($) China Investment cost (30,000,000) Success 60% 35,000,000 Failure 40% 15,000,000 Vietnam Investment cost (24,000,000) Success 55% 38,000,000 Failure 45% 22,000,000 Brazil Investment cost (42,000,000) Success 50% 30,000,000 Failure 50% 20,000,000

• Brazil

• China

• Vietnam

• Cannot be determined

Using the data below, calculate the expected return of option A following a detailed analysis of the external business environment. Option A Better than expected economy (30%) Expected economy (50%) Worse than expected economy (20%) Change in legislation (50%) $2 million $0.5 million ($1 million) No change in legislation (50%) $3.5 million $2.5 million $1.5 million

• $1,625,000

• $3,250,000

• $4,250,000

• $9,000,000

Project A has a 65% probability of success and a 35% probability of failure. If successful, the expected return is $900,000. If the project fails, the expected return is $250,000. Identify the false statement.

• The expected return calculation cannot exceed $900,000

• The expected return calculation must be closer to $900,000 than $250,000

• The expected return calculation must be closer to $250,000 than $900,000

• The expected return calculation must exceed $250,000

Using the diagram, identify the best description of the options presented in the decision tree.

• The decision has two options, with another two options beyond them

• The decision has two options, with one option having an additional decision

• The decision has three options

• The decision has five options, two significant and three less significant

A firm is considering 3 options: expansion, a new additional location, or a complete relocation of its entire business. Using the data below, calculate the growth strategy with the greatest net expected return on the initial investment. Growth Outcomes Probabilities Costs/Revenues ($) Expand premises Expansion cost (1,000,000) Exceed 20% 5,000,000 Meet 40% 3,000,000 Failure 40% 500,000 New location (a) Location (a) cost (6,000,000) Success 60% 16,000,000 Failure 40% 8,000,000 New location (b) Location (b) cost (10,000,000) Success 70% 20,000,000 Failure 30% 10,000,000 Relocation Investment cost (15,000,000) Exceed 40% 36,000,000 Meet 40% 22,000,000 Failure 20% 12,000,000

• Expand premises

• New location (a)

• New location (b)

• Relocation