Reference no: EM132102039

An automotive original equipment manufacturer (OEM) is deciding whether to conduct a redesign of its sports sedan. If it decides not to redesign, then there is no development cost but there is a 55% chance of market success which would result in $6,000,000 in sales profit. Failure would result in $2,500,000 sales profit. If the company decides to redesign the car, a rapid development would cost $2,000,000 and the probability of market success becomes 80% with sales profits of $8,000,000 while market failure would result in $3,500,000 in sales profit. If a more traditional development is pursued then development would cost $1,000,000 and the probability of market success becomes 70% with sales profits of $7,000,000 while market failure would result in $4,000,000 in sales profit. Create a decision tree and determine which path the OEM should choose.