Should telemore develop and market the new product

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Reference no: EM132249708

Management of the Telemore company is considering developing and marketing a new product. It is estimated to be twice as likely that the product would prove to be successful as unsuccessful. If it were successful, the expected profit would be $1,500,000. If unsuccessful, the expected loss would be $1,800,000.

a. Should Telemore develop and market the new product? What is the EMV of the preferred decision?

b. What is the EVPI regarding success or failure of the product?

A market survey can be conducted at a cost of $100,000 to predict whether the product would be successful. Past experience with such surveys indicates that successful products have been predicted to be successful 80 percent of the time, whereas unsuccessful products have been predicted to be unsuccessful 70 percent of the time.

c. What is the probability that the product will be successful given (i) the survey indicates success? (ii) the survey indicates failure?

d. What is the probability that the survey will indicate success?

e. Should the market survey be conducted at the stated cost? What is the most you would be willing to pay for the survey?

Draw a decision tree for each of these three problems and if necessary for their sub-parts.

Clearly show all probabilities, payoffs, costs, and EMVs.

Clearly show the optimal decision.

Reference no: EM132249708

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