Reference no: EM132506986

A company is considering whether to develop a new product or consolidate existing product. New product development can either be undertaken through thorough development at a cost of Shs.150,000 or through rapid development at a cost of Shs 80,000 while product consolidation can either be achieved through strengthening the products at a cost of shs 30,000 or through reaping the products at no extra cost. The following are the expected outcomes, accompanying probabilities and the projected revenue for of the options.

Thorough development                  Rapid development    Strengthening product     Reaping product

outcomes          good mod poor     good mod poor                 good mod poor                 good poor

probabilities          0.4 0.4 0.2             0.1 0.2 0.7                     0.3 0.4 0.3                  0.6 0.4

revenues     1000000 50000 2000      1000000 50000 2000         400000 20000 6000          20000 2000

Question 1: Should the company develop a new product or consolidate existing product?