Rachel Brown, chief engineer at Jones Electronics, has to decide whether to build a new state-of-art processing facility. If the new facility works, the company would realize a profit of $200,000. If it fails, Jones Electronics could lose $180,000. At this time, Rachel estimates a 60% 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 plant would cost $10,000 to build. Rachel estimates a 50-50 chance that the pilot plant will work. If the pilot plant works, there is a 90% probability that the complete plant, if it is built, will also work. If the pilot does not work, there is only a 20% chance that the complete plant (if it is constructed) will work. Rachel faces a dilemma whether to build the plant, or to build a pilot first and then make a decision on the plant. Help Rachel by analyzing this problem.