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A company uses decision tree analysis to evaluate potential options. The management accountant for the...

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Accounting

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A company uses decision tree analysis to evaluate potential options. The management accountant for the company has established two options, one is to build new premises at a cost of Shs. 1,000,000 and the second option is to upgrade old premises at some unidentified cost. If the first option is taken, there is 0.8 probability of high sales resulting into cash flow of Shs. 2,000,000 or 0.2 probability of low sales resulting into cash flow of Shs. 1,000,000. On the other hand, if second option is taken, there is 0.7 probability of high sales resulting into a cash flow of Shs. 2,000,000 and 0.3 probability of low sales resulting into a cash flow of Shs. 1,000,000. Required: a) Construct a decision tree for the above problem b) What would be the cost of the upgrade that would make the company financially indifferent between building new premises and upgrading the old one

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