You have come up with an entrepreneurial idea that seem to have great potential and you are trying to decide whether to invest in the project or not. Your initial investment for research and development (R&D) is estimated to be $8,400 total and there is a 72% chance that it will be successful (28% chance unsuccessful). If the results of the R&D phase turn out to be successful, you will need a total of $19,400 to invest in the products development. If the product goes through the development phase, uncertainty remains about the products market demand and thus uncertainty about the profit will still exist. You categorize the product demand possibilities as high, medium and low with respective probabilities of 0.4, 0.35 and 0.25. Your best estimate of revenue projection under high demand is $79,000; at medium demand, revenue is projected at $56,000; and, at a low demand for the product, revenue is projected at $11,000. Another option is that if the R&D phase is successful, you could sell the rights of the product for an estimated $18,500 and not engage its development yourself.

Include all the following with your hardcopy submission:

1. Create and solve the decision tree using Excel QM. Print it out and include it with your submission. State the optimal decision according to the EMV decision criterion.
2. State the risk profile of the optimal decision according to the EMV criterion.
3. You would like to explore the sensitivity of your decision to the probability of the R&D phase being successful or not. Create a sensitivity table showing how your initial decision to invest $8,400 might change (and its respective EMV) if the probability of a successful R&D phase varies from 0% to 100% in steps of 10%. Provide a clear but short statement to any readers of your report explaining what the Table means.