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Submitted By rdmcclanahan

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Words 364

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Assignment 309.3.3-04 Version LMF5-28

Student: Richard McClanahan

Student ID: 000343792

TASK #5

Answer Task 5A

Calculate the expected value for EACH of the four decision branches.

1. Develop Thoroughly: GOOD) $500,000 (0.45) = $225,000 MOD.) $25,000 (0.10) = $2,500 POOR) $1,000 (0.45) = $450 TOTAL EXPECTED VALUE: $227,950

2. Develop Rapidly: GOOD) $500,000 (0.52) = $260,000 MOD) $25,000 (0.23) =$5,700 POOR) $1,000 (0.25) =$250 TOTAL EXPECTED VALUE: $265,950

3. Strengthen Products GOOD) $2,000 (0.33) = $660 MOD) $10,000 (0.52) = $5,200 POOR) $3,000 (0.15) = $450

TOTAL EXPECTED VALUE: $6,310

4. Reap without investing GOOD) $10,000 (0.33) = $3,300 POOR) $1,000 (0.67) = $670

TOTAL EXPECTED VALUE: $3,970

EXPLINATION: We take the projected payoff and multiply that payoff by the probability factor. So if the good payoff to develop a product rapidly is $500,000, we then multiply that by the probability factor of 52%, or 0.52. That gives us a probable payoff of $260,000. Following this simply process, we extrapolate these results as listed above.

ANSWER TASK 5B

After calculating the total expected value for each decision alternative, the most profitable decision would be to RAPIDLY DEVELOP new products for a probable payoff of $265,950.

EXPLINATION: We take the probable payoff from each of the good, moderate, and poor results and add their value. This will give us the total value for that given decision alternative. Example. The good payoff to reap without investing would be $3,300 and the poor payoff would be $670. By adding these two values together we get a total probable value of $3,970.…...

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