Developed new product which would replace present product

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Innovative Products Ldt. (IPL) has developed a new product which would replace a present product which has shown moderate, but stable, sales over a long period of time. The new product could bring higher profits, but sales are expected to be more sensitive to market conditions than with the present product. The returns (profits in $100,000) and estimated probabilities for the two possible market conditions (G=good, B=bad) are shown for the two possible decisions (P=retain present product, and N=introduce new product). State of Market ?G B Prob: 0.6 0.4 Decision: P 20 20 N 30 2 If the market turns out to be bad IPL could decide to put on a big advertising campaign (=A) at a cost of $400,000. If the campaign worked, profits on the new product would rise to $1,100,000 (less advertising cost), but there is only a 0.4 chance of it working. If the campaign doesn't work, profits will remain at $200,000 (less the advertising cost).

Reference no: EM133629752

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