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You are planning to invest your money in the health care services
You are planning to invest your money in the health care services. Since you do not have a clear idea about the health care services needed by the community, you asked a research center to help in identifying the investment opportunities open to you. The research center conducted deep investigation and prepared a report that contains the following information First: There are (4) different investment opportunities. Second: The initial investment for each of the available alternatives, the expected cash inflow and the probability for each are as follows 1. Health program A a. The initial investment is SR 235000 b. There is a 50% chance to have SR 400000 cash inflow c. There is a 25% chance to have SR 220000 cash inflow d. There is a 15chance to have SR 200000 cash inflow e. There is a 10% chance to have SR - 200000 cash infl inflow 2. Health program B a. The initial investment is SR 175000 b. There is a 20% chance to have SR 300000 cash inflow c. There is a 30% chance to have SR 230000 cash inflow d. There is a 40% chance to have SR 100000 cash intlow c. There is a 10% chance to have SR 90000 cash inflow 3. Health program a. The initial investment is SR 230000 b. There is a 50% chance to have SR 400000 cash inflow 6. There is a 15% chance to have SR 150000 cash inflow d. There is a 10% chance to have SR 175000 cash inflow e. There is a 25% chance to have SR - 100000 cash inflow 4. Health program D a. The initial investment is SR 185000 b. There is a 35% chance to have SR 250000 cash inflow C. There is a 45% chance to have SR 200000 cash inflow d. There is a 10% chance to have SR 175000 cash inflow e. There is a 10% chance to have SR 100000 cash inflow Use the Decision Tree Model to choose the best health program.
Expert Solution
Calculation of NET INFLOW i.e. Total Cash Inflow - Initial investment.
Option with the heighest Net Inflow will be selected for investment.
option 1 :
SR 400000 x 50% = SR 200000
ADD: SR 220000 x 25% = SR 55000
ADD: SR 200000 x 15% = SR 30000
LESS: SR 100000 x 10% =( SR 10000)
Total SR 275000
Less Initial Investment (SR 235000)
= Net Inflow = SR 40000
option 2 :
SR 300000 x 20% = SR 60000
ADD: SR 150000 x 30% = SR 45000
ADD: SR 100000 x 40% = SR 40000
ADD: SR 90000 x 10% = SR 9000
Total SR 154000
Less Initial Investment (SR 175000)
= Net Inflow = - SR 21000
option 3 :
SR 400000 x 50% = SR 200000
ADD: SR 150000 x 15% = SR 22500
ADD: SR 175000 x 10% = SR 17500
LESS: SR 100000 x 25% =( SR 25000)
Total SR 215000
Less Initial Investment (SR 230000)
= Net Inflow = - SR 15000
option 4 :
SR 250000 x 35% = SR 87500
ADD: SR 200000 x 45% = SR 90000
ADD: SR 175000 x 10% = SR 17500
ADD: SR 100000 x 10% = SR 10000
Total SR 205000
Less Initial Investment (SR 185000)
= Net Inflow = SR 20000
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