Problem 13-17 (Algorithmic) Hemmingway, Inc., is considering a $5 million research and development (R&D) project. Profit projections appear promising, but Hemmingway's president is concerned because the probability that the R&D project will be successful is only 0.50. Furthermore, the president knows that even if the project is successful, it will require that the company build a new production facility at a cost of $18 million in order to manufacture the product. If the facility is built, uncertainty remains about the demand and thus uncertainty about the profit that will be realized. Another option is that if the R&D project is successful, the company could sell the rights to the product for an estimated $25 million. Under this option, the company would not build the $18 million production facility. FIGURE 13.18 DECISION TREE FOR HEMMINGWAY, INC. Profit ($ millions) High Demand 36 0.5 Building Facility ($18 million) Medium Demand 17 0.4 Low Demand 7 Successful 0.1 3 0.5 Start R&D Project ($5 million) Sell Rights 20 Not Successful -5 0.5 Do Not Start the R&D Project The decision tree is shown in Figure 13.18. The profit projection for each outcome is shown at the end of the branches. For example, the revenue projection for the high demand outcome is $59 million. However, the cost of the R&D project ($5 million) and the cost of the production facility ($18 million) show the profit of this outcome to be $59 - $5 - $18 = $36 million. Branch probabilities are also shown for the chance events