The White Flour company is considering expanding its operations into computer-based basketball games. The managers feel...

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The White Flour company is considering expanding its operationsinto computer-based basketball games. The managers feel that thereis a 3-year life associated with the project, and it will initiallyinvolve an investment of $100,000. It also believes that there is a60% chance of success and a cash flow of $100,000 in year 1 and a40% chance of failure and a $10,000 cash flow in year 1. If theproject fails in year 1, there is a 60% chance that it will producecash flows of only $10,000 in years 2 and 3. There is also a 40%chance that it will really fail and Sega will earn nothing in year2 and get out of this line of business, with the projectterminating and no cash flow occurring in year 3. If conversely,this project succeeds in the first year, then cash flows in thesecond year are expected to be $200,000, $175,000, or $150,000 withprobabilities of 30%, 50%, and 20%, respectively. Finally, the cashflows in the third and final year of operation are expected to beeither $30,000 more or $20,000 less than they were in year 2, withan equal chance of occurrence.
a. Construct a probability tree representing the possibleoutcomes.
b. Determine the joint probability of each possible sequence ofevents.

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The White Flour company is considering expanding its operationsinto computer-based basketball games. The managers feel that thereis a 3-year life associated with the project, and it will initiallyinvolve an investment of $100,000. It also believes that there is a60% chance of success and a cash flow of $100,000 in year 1 and a40% chance of failure and a $10,000 cash flow in year 1. If theproject fails in year 1, there is a 60% chance that it will producecash flows of only $10,000 in years 2 and 3. There is also a 40%chance that it will really fail and Sega will earn nothing in year2 and get out of this line of business, with the projectterminating and no cash flow occurring in year 3. If conversely,this project succeeds in the first year, then cash flows in thesecond year are expected to be $200,000, $175,000, or $150,000 withprobabilities of 30%, 50%, and 20%, respectively. Finally, the cashflows in the third and final year of operation are expected to beeither $30,000 more or $20,000 less than they were in year 2, withan equal chance of occurrence.a. Construct a probability tree representing the possibleoutcomes.b. Determine the joint probability of each possible sequence ofevents.