Question: Company XYZ must decide whether or not to introduce a new version of its product. Past experience and market research have shown that the probability that the new version will be successful is 60% (0.60) while there is a 40% (0.40) that it will fail. If the product is a success, the company will earn a profit of $250,000. If it is a failure, the company will lose its $150,000 investment.

1. Construct a decision tree that you can use to solve the problem, assuming the president is risk neutral.
2. Will the risk-neutral president decide to introduce the new product?
3. What is the expected value of perfect information?
4. Calculate the probability that the new version will be successful that will make a risk neutral president indifferent between introducing it and not introducing it, assuming the payoffs of $250,000 for success and -$150,000 for failure?

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