Embassy Publishing Company received a six-chapter manuscript for a new college textbook. The editor of the college division is familiar with the manuscript and estimated a 0.72 probability that the textbook will be successful. If successful, a profit of $750,000 will be realized. If the company decides to publish the textbook and it is unsuccessful, a loss of $285,000 will occur. Before making the decision to accept or reject the manuscript, the editor is considering sending the manuscript out for review. A review process provides either a favorable (F) or unfavorable (U) evaluation of the manuscript. Past experience with the review process suggests that probabilities P(F) = 0.7 and P(U) = 0.3 apply. Let s 1 = the textbook is successful, and s 2 = the textbook is unsuccessful. The editor's initial probabilities of s 1 and s 2 will be revised based on whether the review is favorable or unfavorable. The revised probabilities are as follows: P(s 1|F) = 0.85 P(s 1|U) = 5/12 P(s 2|F) = 0.15 P(s 2|U) = 7/12 (@) Construct a decision tree assuming that the company will first make the decision as to whether to send the manuscript out for review and then make the decision to accept or reject the manuscript. Choose the correct decision tree for this problem. (b) Analyze the decision tree to determine the optimal decision strategy for the publishing company. - Select your answer - v () If the manuscript review costs $15,000, what is your recommendation? - Select your answer - v (d) What is the expected value of perfect information? Do not round intermediate calculations. If required, round your answer to the nearest dollar. $ What does this EVPI suggest for the company? This EVPI suggests a better procedure for assessing the market potential for the textbook | - Select your answer - v | be worthwhile if it costs less than EVPI. Profit Success $750,000 Accept 0.15 Failure ($285,000) Favorable 0.85 4 0.3 Reject $0 Review Success $750,000 Accept 7/12 8 (i) Failure ($285,000) Unfavorable 5/12 5 0.7 Reject $0 Success $750,000 Accept 0.72 6 Failure Do Not Review - - - - ($285,000) 0.28 3 Reject - - - - $0Profit Success $750,000 Accept 0.72 Failure ($285,000) Favorable 0.28 4 0.3 Reject - - $0 Review Success $750,000 Accept 5/12 8 (ii) Failure ($285,000) Unfavorable 7/12 5 0.7 Reject 1 $0 Success - - - - $750,000 Accept 0.85 6 Failure Do Not Review - - - - - ($285,000) 0.15 3 Reject $0Profit Success $750,000 Accept 0.85 Failure ($285,000) Favorable 0.15 4 0.7 Reject - - - - $0 Review Success $750,000 Accept 5/12 8 (iii) Failure ($285,000) Unfavorable 7/12 5 0.3 Reject 1 $0 Success - - - - - - $750,000 Accept 0.72 6 Failure Do Not Review - - - - - - ($285,000) 0.28 3 Reject $0Profit Success $750,000 Accept 0.15 Failure ($285,000) Favorable 0.85 4 0.7 Reject $0 Review Success $750,000 Accept 7/12 (iv) Failure ($285,000) Unfavorable 5/12 5 0.3 Reject 1 $0 Success $750,000 Accept 0.72 6 Failure Do Not Review ($285,000) 0.28 3 Reject $0 - Select your answer - v