Mega Coal Mining (MCM) Inc. is considering the undertaking of a new venture. The government of Australia has decided to put the highly risky Poseidon plot up for leasing for coal exploration and production. MCM Inc is the only company considering bidding for the lease. To even consider the bid, the Australia government requires an upfront fee of 15M. If the bid is successful, which will be announced shortly after the payment of the upfront fee, the government will grant permission to MCM Inc to begin exploration and mining immediately; if it is not successful, the 15M upfront fee will be lost.

Karol, the exploration and production director of MCM Inc, believes that, if MCM Inc decides to bid, the probability that the bid will be successful is 80%. The coal reserves have been mapped and are known to be worth 200M (after MCM Inc pays the Australian government royalties and mining fees). The precise costs of mining the coal are not known at the time of the bidding decision; they will become known after the bid is successful and before mining begins. From past experience with such projects, Salima believes costs will either be

300M with probability 60%, or 150M with probability 40%. In either case, MCM Inc does not have to mine the coal and can always return the plot to the government for no extra cost.

Karol is considering whether this is a project worth bidding for. Draw a decision tree to determine the payoffs and risks associated with each decision. Use the tree to help Karol make her decisions.