3.3 Decision Tree

Coffee Stop (CS) is a small cafe serving a variety of coffee drinks and healthy snacks. CS wants to increase its profits and is considering several options, as outlined below. 

Option 1: Establish fair trade relationships with coffee farmers to better target ethical consumers.

Option 2: Buy a second coffee machine, that is either:

• 2a: the same type of manual machine that the cafe currently owns

• 2b: a new type of coffee machine that grinds and makes the coffee automatically, but still requires a person to operate

For both options 2a and 2b, the cafe would need to hire another employee, which would cost $75 000 over five years.

The probabilities, additional costs and additional revenues forecast for each option are given in Table 2. The costs and revenues are projected over a five-year period.

Table: Forecast additional costs, additional revenues and probabilities of each option for CS over five years.