Decision tree analysis

1The production analyst of Unilever is faced with deciding whether to purchase a patent to develop a new product or not. If the company purchases the patent, it should develop the product. The Selling price of the patent is 75,000. There are two ways of developing the product: The electronic system and the manual. It costs 60,000 to use the electronic system, and 40,000 to use the manual. The probability of success in the electronic system is 65% and that in the manual system is 75%. If the product is successfully developed, it will give an income of 800,000. Should the company purchase the patent?

If so, what system of development is best use?

2ILY Construction has been asked to submit a proposal for developing a new product.

The cost of preparation is P12,000.00. It is estimated that if ILY submits a proposal, the chance that it will receive the contract is 50%. It is not certain that the product can actually be developed, but there are three methods of development, of which one should be chosen. Method A will cost P120,000 and has 80% chance of success. Method B will cost P50,000 with a 60% probability of success. Method C will cost P30,000 and the probability of success is 45%. If the company receives the contract and supplies the product, it will receive P8,000,000. No penalty is charged for failing to produce the product. Should ILY Construction prepare the proposal? Explain why?

3In problem number 2, suppose there is a penalty of P100,000 if the company fails to develop the product. Should the company preparing proposal? Why?