Prepare decision making tree

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Reference no: EM1377647

Meredith Delgado have a small company that has constructed software for organizing and playing music on a computer. Her software contains a number of rare features that she has patented so her firm's future has looked bright. However, there now has been an ominous development. It appears that a number of her patented features were copied in similar software developed by Music Man Software, a huge software company with annual sales revenue in excess of $1 billion.

Meredith is distressed. Music Man Software has stolen her ideas and that company's marketing power is likely to enable it to capture the market and drive Meredith out of business.

In response, Meredith has sued Music Man Software for patent infringement. With attorney fees and other expenses, the cost of going to trial (win or lose) is expected to be $1 million. She feels that she has a 60% chance of winning the case, in which case she would receive $5 million in damages. If she loses the case, she gets nothing. Moreover, if she loses the case, there is a 50% chance that the judge would also order Meredith to pay for court expenses and lawyer fees for Music Man (an additional $1 million cost). Music Man Software has offered Meredith $1.5 million to settle this case out of court.

Construct and use a decision tree to determine whether Meredith should go to court or accept the settlement offer, assuming she wants to maximize her expected payoff.

Reference no: EM1377647

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