A particular company is considering bidding on a contract for a new office building complex. The figure below shows the decision tree prepared by one of the company's analysts. At node 1, the company must decide whether to bid on the contract. The cost of preparing the bid is $220,000. The upper branch from node 2 shows that the company has a 0.8 probability of winning the contract if it submits a bid. If the company wins the bid, it will have to pay $2,000,000 to become a partner in the project. Node 3 shows that the company will then consider doing a market research study to forecast demand for the office units prior to beginning construction. The cost of this study is $170,000. Node 4 is a chance node showing the possible outcomes of the market research study. Nodes 5, 6, and 7 are similar in that they are the decision nodes for the company to either build the office complex or sell the rights in the project to another developer. The decision to build the complex will result in an income of $5,000,000 if demand is high and $3,000,000 if demand is moderate. If the company chooses to sell its rights in the project to another developer, income from the sale is estimated to be $3,500,000. The probabilities shown at nodes 4, 8, and 9 are based on the projected outcomes of the market research study. Bid Market Research Profit ($ Build Compldigh Deme/000520 85 Moderate Demand .15 High Demand 1,110 225 2,610 Moderate Dergad Forecast Hi .6 Sell Build Comel Win Contract Forecast Moderate .4 .775 Sell .8 1,110 Build Comple High Demand 2,780 .6 No Market Research Moderate Demand .4 Sell 1,280 Lose Contract Do Not Bid -220 0 (a) Verify the company's profit projections shown at the ending branches of the decision tree by calculating the payoffs of $2,610,000 and $610,000 for first two outcomes, the outcomes extending from chance node 8. Bid Outcome 1 ($ in 1,000s) 2 Contract Market research High demand Total Bid $2,610 Outcome 2 ($ in 1,000s) Contract Market research Moderate demand