Tom Jones, an employee of ACME Construction

Tom Jones, an employee of ACME Construction, claims to have injured his back as a result of a fall while repairing the roof at one of the Carlton apartment buildings. He filed a lawsuit against Doug Reynolds, the owner of Carlton Apartments, asking for damages of $2,000,000. Tom claims that the roof had rotten sections and that his fall could have been prevented if Mr. Reynolds had told Manhattan Construction about the problem. Mr. Reynolds notified his insurance company, Allied Insurance, of the lawsuit. Allied must defend Mr. Reynolds and decide what action to take regarding the lawsuit.Some depositions and a series of discussions took place between both sides. As a result, Tom Jones offered to accept a settlement of $800,000. Thus, one option is for Allied to pay Tom 800,000 to settle the claim. Allied is also considering making Tom a counteroffer of $500,000 in the hope that he will accept a lesser amount to avoid the time and cost of going to trial. Allied’s preliminary investigation shows that Tom’s case is strong; Allied is concerned that Tom may reject their counteroffer and request a jury trial. Allied’s lawyers spent some time exploring Tom’s likely reaction if they make a counteroffer of $500,000.The lawyers concluded that it is adequate to consider three possible outcomes to representTom’s possible reaction to a counteroffer of $500,000: (1) Tom will accept the counteroffer and the case will be closed; (2) Tom will reject the counteroffer and elect to have a jury decide the settlement amount; or (3) Tom will make a counteroffer to Allied of $700,000. If Tom does make a counteroffer, Allied has decided that they will not make additional counteroffers. They will either accept Tom’s counteroffer of $700,000 or go to trial.If the case goes to a jury trial, Allied considers three outcomes possible: (1) the jury may reject Tom’s claim and Allied will not be required to pay any damages; (2) the jury will find in favor of Tom and award him $750,000 in damages; or (3) the jury will conclude that Tom has a strong case and award him the full amount of $2,000,000.Key considerations as Allied develops its strategy for disposing of the case are the probabilities associated with Tom’s response to an Allied counteroffer of $500,000 and the probabilities associated with the three possible trial outcomes. Allied’s lawyers believe the probability that Tom will accept a counteroffer of $500,000 is 0.10, the probability that Tom will reject a counteroffer of $500,000 is 0.40, and the probability that Tom will, himself, make a counteroffer to Allied of $700,000 is 0.50. If the case goes to court, they believe that the probability the jury will award Tom damages of $2,000,000 is 0.30, the probability that the jury will award Tom damages of $750,000 is 0.50, and the probability that the jury will award Tom nothing is 0.20.Draw the decision tree, and determine the optimal strategy for the Insurance company. Write a managerial report. Include your decision tree and calculations in the appendix