The CanMan Co. is a company that designs and produces semiconductor equipment. In response to customer needs, it is now considering improving one of its existing products or developing a new product.

It cost almost nothing to improve the product. Estimated revenues under high, and low demand are show in Table 2. In comparison, it costs $6 million to develop the new product. If the new product is successfully developed (with a probability of 0.3), the company will have two options. One is that the company proceeds to produce the new product at a cost of $20 million. Estimated revenues under high, and low demand are shown in Table 3. The other option is to sell the technology to its competitor for $27 million. If the new product development is unsuccessful, the company will not be able to recover any costs.

The company hopes to determine a decision strategy to maximize its profits.

Table 2: Revenue from improved product

	Demand
	High	Low
Revenue (in millions of dollars)	2	1
Probability	0.6	0.4

Table 3: Revenue from new product

	Demand
	High	Low
Revenue (in millions of dollars)	60	36
Probability	0.7	0.3

1. Develop a decision tree that represents the problem.
2. Identify the optimal decision strategy. Should the company develop the new product? If it does, and if the development is successful, what should the company do? What is the expected value of your strategy?