A company is considering whether to develop and market a particular product. There is 40% probability that the research and development department will come up with a viable product, and a 60% probability that the product will be scrapped. The cost of undertaking the research and development is N$200 000.

If the product development is successful, the company will build a plant. The product demand is unknown, and the company has the choice of building a large or small plant. The expected demand and net present value is shown below:

	High demand	Low demand
Action	Probability 75%	Probability 25%
Large Plant	N$1 600 000	N$400 000
Small Plant	N$1 000 000	N$1 000 000

Advise the company on the most beneficial course of action using a decision tree.

Answer rating: 100% (QA)

Decision Tree Analysis for Product Development Heres the decision tree for the companys product deve... View the full answer