How do you determine what value of side benefits would make Ventron indifferent between the two alternatives? Evaluate how much Ventron would be willing to pay, right now, for perfect information about both steps of the improved extrusion process. I don't understand how this question or how to evaluate both steps.

The Ventron Engineering Company hasjust been awarded a $2 million development contract by the LLB. Army Aviation Systems Command to develop a blade spar for its Heavy Lit't Helicopter program. The blade spar is a metal tube that runs the length of and provides strength to the helicopter blade. Due to the unusual length and size of the Heavy Lift Helicop ter blade, VEHIIDD is unable to produce a single-piece blade spar of the required dimensions using existing extrusion m: 6.4 Developing a Helicopter Component for the Arm! equipment and material. The engineering department has prepared two alternatives for developing the blade spar: (I) sectioning or (2) an improved extrusion process. Venn-on must decide which process to use. [Backing out of the con- tract at any point is not an option.) The risk report has been prepared by the engineering department. The information from this report is explained next. The sectioning option involves joining several shorter lengths of extruded metal into a blade spar of sufficient length. This work will require extensive testing and rework over a l2-month period at a total cost of $1.3 million. Although this process will denitely produce an adequate blade spar, it merely represents an extension of existing technology. To improve the extrusion process, on the other hand, it will be necessary to perform two steps: (I 1 improve the mate- rial used. at a cost of $300,000. and {2] modify the extrusion press, at a cost of $960000. The rst step will require six months of work. and if this rst step is successful, the second step will require another six months of work. If both steps are successful. the blade spar will be available at that time. that is, a year from now. The engineers estimate that the probabilities of succeeding in steps 1 and 2 are 0.9 and 0.?5. respectively. However. if either step is unsuccessful [which will be known only in six months for step I and in a year for step 2), 1intention will have no alternative but to switch to the sectioning processand incur the sectioning cost on top of any costs already incurred. Development of the blade spar must be completed within 13 months to avoid holding up the rest of the con- tract. If necessary, the sectioning work can be done on an accelerated basis in a six-month period, but the cost of sec- tioning will then increase from $l.3 million to $2.4 million. The director of engineering, Dr. Smith, wants to try devel oping the improved extrusion process. He reasons that this is not only cheaper [if successful) for the current project, but its expected side benets for future projects could be sizable. Although these side benets are difcult to gauge, Dr. Smith's best guess is an additional $2 million. (These side benets are obtained only if both steps of the modied extrusion process are completed successfully.) a. Develop a decision tree to maximize Ventron's EMV. This includes the revenue From this project. the side benets (ifapplicable) from an improved extrusion pro cess, and relevant costs. You don't need to \"sorry about the time value of money; that is. no discounting or net present values are required. Summarize your ndings in words in the spreadsheet. I). What value of side benefits would make 1'v'entron iodifd ferent between the two alternatives? 1:. How much would Ventron be willing to pay, right NOW. for perfect information about both steps of the improved extrusion process?] [This information 1Would tell Ventron, right now, the ultimate success or failure outcomes of both steps.)