A company has developed a new product in its R&D laboratory. The company has the option of setting up production facility to market this product straight away. If the product is successful, then over the three years expected product life, the returns will be Rs 120 lakh with a probability of 0.70. If the market does not respond favourable, then the returns will be only Rs 15 lakh with probability of 0.30.

The company is considering whether it should test market this product building a small pilot plant. The chance that the test market will yield favourable response is 0.80. If the test market gives favourable response, then the chance of successful total market improves to 0.85.

If the test market gives poor response then the chance of success in the total market is only 0.30.

As before, the returns from a successful market will be Rs 120 lakh and from an unsuccessful market only Rs 15 lakh. The installation cost to produce for the total market is Rs 40 lakh and the cost of the test marketing pilot plant is Rs 5 lakh. Using decision-tree analysis, draw a decision-tree diagram, carry out necessary analysis to determine the optimal decisions.