Nathan savitzky, chief engineer of Abina Electronics, has to decide whether to build a new state -of - the art processing facility. If the new facility works, the comapny can realize a profit of $200,000. If it fails Abina Electronics could lose $180,000. At this time Savitzky estimates a $80% chance that the new process will fail.
The other option is to build a pilot plant and then decide whether to build a complete facility. the pilot would cost $15,000 to build. Savitzky estimates a 50-50 chance that the pilot will work and not fail. If the pilot plant works, there is a 75% that the complete plant, if it is built, will work. If the pilot fails, there is only a 15% chance that the complete project (if constructed) will work. Savitzky faces a dilemma . DShould he built the plant? Should he build the pilot project ans then make a decision. Help Savitzky by analyzing the problem.
Develop a decision tree for this problem and determine the optimal decision strategy.