Sarah Chang is the owner of a small electronics

company. In six months, a proposal is due for an

electronic

timing system for the next Olympic

Games. For several years, Chang's company has been

developing a new microprocessor, a critical component

in a timing system that would be superior

to any product currently on the market. However,

progress in research and development has been

slow, and Chang is unsure whether her staff can

produce the microprocessor

in time. If they succeed

in developing the microprocessor (probability

p1), there is an excellent chance (probability p2) that

Chang's company will win the $1 million Olympic

contract. If they do not, there is a small chance

(probability p3) that she will still be able to win the

same contract with an alternative but inferior timing

system that has already been developed.

If she continues the project, Chang must invest

$200,000 in research and development. In addition,

making a proposal (which she will decide whether

to do after seeing whether the R&D is successful)

requires developing a prototype timing system at an

additional cost. This additional cost is $50,000 if R&D

is successful (so that she can develop the new timing

system), and it is $40,000 if R&D is unsuccessful (so

that she needs to go with the older timing system).

Finally,

if Chang wins the contract, the finished product

will cost an additional $150,000 to produce.

a. Develop a decision tree that can be used to

solve Chang's problem. You can assume in this

part of the problem that she is using EMV (of

her net profit) as a decision criterion. Build the

tree so that she can enter any values for p1, p2,

and p3 (in input cells) and automatically see her

optimal EMV and optimal strategy from the tree.