PLE has developed a prototype for a new snow blower for the consumer market. This can exploit the company's expertise in small-gasoline-engine technology and also balance seasonal demand cycles in North American and European markets to provide additional revenues during the winter months. Initially, PLE faces to possible decisions: introduce the product globally at a cost of $850,000 or evaluate in a North American test market at a cost of $200,000. If it introduces the product globally, PLE might find either a high or low response to the product. The probabilities of these events are estimated to be 0.6 and 0.4. With a high response, gross revenues of $2,000,000 are expected; with a low response, the number is $450,000. If PLE starts with a North American test market, it might find a low response or a high response with probabilities of 0.3 and 0.7. This may or may not reflect the global market potential. In any case, after conducting the market research, PLE next needs to decide whether to keep sales only in North American, globally, or drop the product.

If the North American response is high and PLE stays only with North America, the expected revenue is $1,200,000. If it markets globally at an additional cost of $200,000 the probability fo a high global response is 0.9 with revenues of $2,000,000 and $450,000 if the response is low.

If the North American response is low and it remains in North America, the expected revenue is $200,000. If it market globally at an additional cost of $600,000 the probability of a high global response is 0.05 with revenues of $2,000,000 and $450,000 if the response is low.

Construct a decision tree, determine the optimal strategy, and develop a risk profile associated with the optimal strategy. Evaluate the sensitivity of the optimal strategy to changes in the probability estimates.

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