Music promoter Owen Money is trying to decide if he should sign rock star Harmonica Lewinsky and her all girl band for a performance at the Greek Theater in April of next year. Owen will have to pay Harmonica and her band $80,000 plus $40,000 to rent the Greek Theater upon signing the contracts today. The Greek Theater seats 6,000 and Owen is sure the concert will sell out at $50 per seat for a total of $300,000. Harmonica, however, is not totally reliable. Sometimes legal or detox commitments make her unavailable to perform at the last minute. This has happened at 20% of her concerts. If this occurs, Owen would get $80,000 back from Harmonica but not the $40,000 rental fee. Owen is also worried about the possibility of rain. The Greek is an outdoor theater and if it rains the concert would be canceled. Historically, it rains on 10% of the days in April. 

The Greek Theater has a policy of refunding the rental fee in the event of rain but Owen would not get back the $80,000 paid to Harmonica. If the concert is canceled for any reason, the tickets are of course refunded. An insurance agent has offered Owen a performance bond for a premium of $30,000 wherein Owen would receive a check for $120,000 if Harmonica is unable to perform or if it rains.

 

Draw the decision tree with probabilities and payoffs.