Reference no: EM131804005

A manufacturer has been presented with a proposal for a new product and must decide whether or not to develop it. The cost of the development project is $200,000; the probability of success is 0.70 If development is unsuccessful, the project would be terminated. If it is successful, the manufacturer must then decide whether to begin manufacturing the product at a high level of at a low level. If the demand is high, the incremental profit given a high level of manufacturing is $700,000; given a low level, it is $150,000. If demand is low, the incremental profit given a high level of manufacturing is $100,000; given a low level, it is $150,000 All of these incremental profit values are gross figures (i.e., before subtraction of $200,000 development cost) The probability of high demand is estimated as P = 0.40, and of low demand as P = 0.60 Construct a decision tree for this situation.