Question
Can you show how to build this tree? ZZT Electronics designs, builds and tests prototype power management systems for electric vehicles. ZZT have been approached
Can you show how to build this tree?
ZZT Electronics designs, builds and tests prototype power management systems for electric vehicles.
ZZT have been approached by a major automobile manufacturer to produce prototypes of two power
management modules: module A and module B. Module A is a battery management system and module
B is a regenerative braking management system. Under the terms of the proposed contract, ZZT will
deliver within two months tested prototypes of modules A and B. If either prototype fails to pass testing,
the contract is cancelled and ZZT receives nothing. If ZZT produces the two prototypes successfully, it
will receive a payment of $6,000,000. ZZT has the capacity to design, build, and test one prototype
module per month. ZZT plans to work on the modules one-at-a-time. If the first prototype module fails in
testing, then the contract will be terminated. In this situation, ZZT will save the development cost of the
second prototype module but will have to pay the entire cost of the first prototype module. The problem
for ZZT is to decide whether or not to take the contract, and if so, in what order to work on the modules.
After discussing matters with engineering, management believes that it will cost $700,000 to design, build
and test a prototype of module A and $1,000,000 to design, build and test a prototype of module B. The
probability that a finished prototype will pass testing is 0.7 for A and 0.4 for B. The success or failure in
testing of the two prototypes are independent events.
a) Write out a decision tree to help ZZT to determine whether or not to agree to the contract and in
what order to build the prototype modules. What is the expected monetary value of your tree?
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