3. Techware Incorporated is considering the introduction of two new software products to the market. Thecompany has four options regarding these products:introduce neither product, introduce product 1 only,introduce product 2 only, or introduce both products.Research and development costs for products 1 and2 are $180,000 and $150,000, respectively. Notethat the first option entails no costs because researchand development efforts have not yet begun. Thesuccess of these software products depends on thenational economy in the coming year. The company’srevenues, depending on its decision and the state ofthe economy, are given in the file P09_33.xlsx. Theprobabilities of a strong, fair, or weak economy in thecoming year are assessed to be 0.10, 0.60, and 0.30,respectively.a. Use PrecisionTree to identify the strategy thatmaximizes Techware’s expected net revenue.b. Perform a sensitivity analysis on the optimal decision, letting each of the inputs vary one at a timeplus or minus 25% from its base value, and summarize your findings. Which of the inputs appearsto have the largest effect on the best solution?
3. Techware Incorporated is considering the introduction of two new software products to the market. The
company has four options regarding these products:
introduce neither product, introduce product 1 only,
introduce product 2 only, or introduce both products.
Research and development costs for products 1 and
2 are $180,000 and $150,000, respectively. Note
that the first option entails no costs because research
and development efforts have not yet begun. The
success of these software products depends on the
national economy in the coming year. The company’s
revenues, depending on its decision and the state of
the economy, are given in the file P09_33.xlsx. The
probabilities of a strong, fair, or weak economy in the
coming year are assessed to be 0.10, 0.60, and 0.30,
respectively.
a. Use PrecisionTree to identify the strategy that
maximizes Techware’s expected net revenue.
b. Perform a sensitivity analysis on the optimal decision, letting each of the inputs vary one at a time
plus or minus 25% from its base value, and summarize your findings. Which of the inputs appears
to have the largest effect on the best solution?
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