Manufacture has been presented with proposal for new product

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Reference no: EM132219249

A manufacture 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 0.80. if development is unsuccessful. the project will be terminated. if it is successful the manufacturer must the decide whether to begin manufactoring the product at high level or at a low level. if demant is high, the incremental profit given a high level of manufacturing is $600,000; 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 the incremental profit values are gross figure (i.e., before subtraction of the $200,000 development cost). The probability of high demand is estimated as P=0.30. Construct the decision tree for this situation. determine whether or not the manufacturer shoud proceed with the attempt to develop this product by determining the expected value associated with the alternative acts"and don't develop".

Reference no: EM132219249

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