Chemco Corporation is a chemical company. The research and development manager is trying to decide whether or not to develop a new solvent that would work at all conditions. It is thought that the solvent project may be a major success with an estimated value of $1, 480,000, a moderate success with an estimated value of $820,000 since it can be sold to another company to help with its current project, or a total failure. If the project is a failure, it will cost the company $750,000. Based on the subjective judgment of the manager, the following probabilities are assigned to the three possibilities. It will cost $360,000 to conduct the research to develop the solvent. If they decide not to make the new solvent, their current market will erode by $50,000. Should the company pursue the endeavor? Be sure to draw the decision tree correctly.
P(major success) = 0.20
P(moderate success) = 0.40
P(failure) = 0.40