Question: Mountain States Electric is considering replacing some of its equipment at a generating substation and is attempting to decide whether it should replace an older, existing PCB transformer. Even though the PCB generator meets all current regulations, if an incident occurred, such as a fire, and PCB contamination caused harm, the company would be liable for damages. Recent court cases have shown that simply meeting utility regulations doesn't relieve a utility of liability if an incident occurs.

If the utility replaces the PCB transformer, no PCB incidents will occur, and only the cost will be that of the transformer, $85,000. If the company wants to keep the transformer, then management estimates there is a 50-50 chance pf there being a high likelihood of an incident or a low likelihood of an incident. For the case in which there is a high likelihood that an incident will occur, there is a 0.004 probability that a fire will occur during the lifetime of the transformer and a 0.996 probability that no fire will occur. If a fire occurs, there is a .20probability that it will be bad and a high cost of $90 million for the cleanup, whereas there is an 0.80 probability that the fire would be minor and cleanup would be $80 million. If no fire occurs, there is no cleanup. For the case in which there is a low likelihood of an incident occurring, there is a 0.001 probability that a fire will occur during the life of the existing transformer and a 0.999 probability that a fire will not occur. If a fire does occur, then the SAME PROBABILITIES occur for the incidence of high and low cleanup costs. Also if no fire occurs, there is no cleanup cost.

Perform a decision tree analysis of this problem this company Mountain States Electric Service and indicate the recommended solution. Is this the decision you believe the company should make? Explain.