An Indonesian oil company, PT Pertasik, must decide whether to continue optimizing existing oil wells, namely in East Java, or investing in exploration in the Papua region.

If the company chooses to continue investing in East Java, the company will only incur costs of USD 1,000,000. With a 60% probability that the oil price will increase, the company expects a payoff of USD 4,000,000. On the other hand, if the price of oil falls, the company estimates that it will only get a payoff of USD 500,000.

Another option is to conduct exploration in the Papua region, the cost to be incurred by the company is USD 2,000,000. With a 60% chance that oil prices will rise, the company has 2 options, namely to continue drilling for oil with a fund of USD 4,000,000 or stop the project and sell it for USD 1,500,000. If the company chooses to drill in Papua, the company will get a payoff of USD 15,000,000 with the condition that 80% of the oil price will increase, otherwise if the oil price decreases, the company's payoff will be negative of USD 2,000,000.

In the exploration option in Papua, there is a 40% chance that oil prices will fall. If so the company will stop the project and sell the project for USD1,500,000.

You are asked to:

1. Make a decision tree for PT Pertasik. Make sure your decision tree shows the probability, payoff and expected value of each strategy.

2. Determine the best choice for PT Pertasik and explain the reasons for your choice!