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decision tree

A European consortium has spent a considerable amount of time and money developing a new supersonic aircraft. The aircraft gets high marks on all performance measures except noise. In fact, b/c of the noise, the consortium's management is concerned that the US government may impose restrictions at some of the American airports where the aircraft can land. Management judges a 50-50 chance that there will be some restrictions. Without restrictions, management estimates its (present discounted) profit at $125 million; with restrictions, its profit would be only $25 million. Management must decide now, before knowing the governments decision, whether to redesign parts of the aircraft to solve the noise problem (in which case, full landing rights are a certainty) and a .4 chance it will fail. Using a decision tree, determine the consortium's best course of action, assuming management is risk Neutral.

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Solution Summary

A decision tree is applied.