Answer to Question #72698 in Civil and Environmental Engineering for Bounsy

Question

An inventor has developed an electronic instrument to monitor the impurities in the metal produced by a smelting process. A company that markets this type of equipment is considering the purchase of the patent rights to this instrument for $40,000. The company feels that there is one chance in 5 of the device becoming a successful seller. It is estimated that if the device is successful, it will produce net revenues of $150,000 a year for the next 5 years. If the product is not a success, no revenue will be received. The company’s interest rate is 15%.

(a) Draw a decision tree describing the decision options and determine the best decision policy