Maverick Ltd is considering whether to develop and market a new product. Development the costs are estimated to be R180 000, and there is a 0.75 probability that development effort will be successful and a 0.25 probability that the development effort will be unsuccessful. If the development is successful, the product will be marketed and it is estimated that:

a. If the product is very successful profits will be R540 000;

b. If the product is moderately successful profits will be R100 000;

c. If the product is a failure, there will be a loss of R400 000. Each of the above profit and loss calculations is after taking into account the development costs of R180 000. The estimated probabilities of each of the above events are as follows:

d. Very successful 40%

e. Moderately successful 30%

f. Failure 30%

Required:

3.1. Construct a decision tree to illustrate the scenario above (7)

3.2. Calculate the Expected Value (8)

3.3 Explain the meaning of the terms standard deviation and coefficient of variation as measures of risk and outline their limitations for decision makers.