a O a ES FIGURE 1 185 0 W(75%) Build F(25%) PW(50%) - 195 Do Not Build - 15 28) 138 185 Try Pilot W(15%) Build F(85%) 15 - 195 PF(50%) Do Not Build 38 - 15 38 W(40%) 200 Build F(60%) 38 - 180 Decide Now W=Work, F = Fail Do Not Build 0 PW = Pilot Works, PF = Pilot Fails o Q COD FIGURE 2 90 185 90 W(75%) Build PW(50%) F(25%) Do Not Build -195 - 15 - 138 38 185 Try Pilot W(15%) Build F(85%) - 15 - 195 PF(50%) Do Not Build - 15 - 28 W (40%) 200 Build F(60%) 0 - 180 Decide Now W=Work, F= Fail 0 PW = Pilot Works, PF = Pilot Fails 38 Do Not Build FIGURE 3 90 PW(50%) 90 W(75%) 185 Build F(25%) 195 Do Not Build - 15 - 138 185 90 Try Pilot W(15%) PF(50%) Build (85%) 7-15 -195 T Do Not Build LY FIGURE 3 90 185 W(75%) 90 Build F(25%) PW(50% - 195 Do Not Build 15 - 138 90 185 Try Pilot W(15%) Build F(85%) - 15 -195 PF(50%) Do Not Build - 15 90 -28 (40%) 200 W Build F(60%) 0 - 180 Decide Now Do Not Build W=Work, F = Fail 0 PW = Pilot Works, PF = Pilot Fails Ronald Lau, chief engineer at South Dakota Electronics, has to decide whether to build a new state-of-the-art processing facility. If the new facility works, the company could realize a profit of $200,000. If it fails, South Dakota Electronics could lose $180,000. At this time, Lau estimates a 60% chance that the new process will fall. The other option is to build a pilot plant and then decide whether to build a complete facility. The pilot plant would cost $15,000 to build Lau estimates a 50-50 chance that the pilot plant will work. If the pilot plant works, there is a 75% probability that the complete plant, if it is built will also work. If the pilot plant does not work, there is only a 15% chance that the complote project (if it is constructed) will work. Lau faces a dilemma Should he build the plant? Should he build the pilot project and then make a decision? Help Lau by analyzing this problem, The correct decision tree for Ronald is shown in (all payoffs are in thousands) Ronald's initial decision should be to the plant a