Joosey Technologies have developed a new manufacturing process which they believe will revolutionize the smartphone industry. They are, however, uncertain how they should go about exploiting this advance. Initial indications of the likely success of marketing the process are 55%, 30%, 15% for "high success", "medium success" and "probable failure", respectively. The company has three options; they can go ahead and develop the technology themselves, license it or sell the rights to it. The financial outcomes (in R millions) for each option are presented in Table 3. Table 3: Financial outcomes (in R millions) Probable failure -100 0 25 Develop License Sell High success 80 40 25 Medium success 40 30 25 a) Draw a decision tree to represent the company's problem. b) Calculate the Expected Monetary Value (EMV) for all possible decisions the company may take and hence determine the optimal decision for the company.

Joosey Technologies have developed a new manufacturing process which they believe will revolutionize the smartphone industry. They are, however, uncertain how they should go about exploiting this advance. Initial indications of the likely success of marketing the process are 55%, 30%, 15% for "high success", "medium success" and "probable failure", respectively. The company has three options; they can go ahead and develop the technology themselves, license it or sell the rights to it. The financial outcomes (in R millions) for each option are presented in Table 3. Table 3: Financial outcomes (in R millions) Probable failure -100 0 25 Develop License Sell High success 80 40 25 Medium success 40 30 25 a) Draw a decision tree to represent the company's problem. b) Calculate the Expected Monetary Value (EMV) for all possible decisions the company may take and hence determine the optimal decision for the company.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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