BU609 Case Questions
Case 4: R&D at ICI
1. Construct a decision tree to assess the desirability of investing in research on Anthraquinone.
2. What do you recommend and why?
HINT
This is NOT a typical decision tree problem, as ten input parameters used in the decision tree are, themselves,
subject to uncertainty. These parameters include revenue from a successful venture, five different R&D related costs, and
four different probabilities that affect venture success.
You must consider the impact of this uncertainty , as it affects the risk profile of the optimal decision. That is, the expected NPV of the optimal de
You must consider the impact of this uncertainty, as it affects the risk profile of the optimal decision. That is, the expected NPV of the optimal decision (at the start of the decision tree ) now changes with the values of the uncertain parameters listed above
