## Q66 key (Settlement Decision Tree)

1. Expected trial judgment is 30 percent of $0 plus 50 percent of $1,600,000 plus 20 percent of $4,500,000, equaling $1,700,000. Add $550,000 future defense cost for total direct-to-trial expected cost of $2,250,000. Missed: the defense-verdict branch is discussed without weighting all outcomes.
2. Accepting now costs $1,450,000 plus $50,000 completion cost, or $1,500,000. The $300,000 already spent is sunk and excluded from every comparison. Missed: past spend distorts the current choice or the transaction cost disappears.
3. The counter branch costs $40,000 regardless. Acceptance contributes 45 percent of $1,200,000, or $540,000. Rejection contributes 55 percent of $2,325,000, consisting of $1,700,000 expected judgment plus $625,000 future defense cost, or $1,278,750. Total expected counter cost is $1,858,750. Missed: the rejected branch keeps an offer that the facts withdraw or uses the lower defense cost.
4. Ranking by expected cost is accept now at $1,500,000, counter at $1,858,750, and direct trial at $2,250,000. The $4.5 million judgment branch is already weighted in expected cost and separately shows material tail exposure. Missed: tail risk is ignored or counted twice.
5. A 30 percent defense verdict does not make a payment irrational because the other 70 percent carries much larger outcomes and unavoidable defense expense. No supplied nonmonetary factor overrides the calculation. Missed: one branch is treated as the entire decision tree.
6. Accept the $1.45 million complete-release offer before it expires. Do not risk its withdrawal for the $1.2 million counter on these inputs. Missed: Emberline pays an expected $358,750 premium for the counter strategy or $750,000 for trial relative to settlement.