Saudi Arabian Oil Company (SAOC) is planning to make a bid for oil and gas leasing right in a newly opened drilling area in the Gulf of Guinea. SAOC is trying to decide whether to place a high bid of $16 million or a low bid of $7 million. SAOC expects to be bidding against its major competitor, Exxon Mobile Corporation (EMC) and predicts EMC to place a bid of $10 million with probability 0.4 or a bid of $6 million with probability 0.6. Geological data collected at the drilling site indicates a 0.15 probability of the reserves at the site being large, a 0.35 probability of being average, and 0.50 being unusable. A large or average reserve would most likely represent a net asset value of $120 million or $28 million, respectively, after all drilling and extraction costs are paid. The company that wins the bid will drill an exploration well at the site for a cost of $5 million.

What is the optimal decision?

Construct a decision tree.