7 Problem 1. Our company is considering investing $5 million in R+D for a new product. Thereis a 50% chance the R+D will lead to a viable product. If we come up with a new product, wecan build a facility to manufacture it in. This would cost $20 million.Demand for the product is uncertain. We've identified three likely scenarios:ScenarioProbabilityRevenue$25 million$35$49Low Demand20%Medium30%High50%Instead of making the product ourselves, another option is to sell the licensing rights to theproduct to another company. We can sell the rights for $12 million.Should we go ahead with the R+D project? If it's successful, should we make the productourselves or sell the rights?

Part 1: Should we go ahead with R&D? The R&D cost is $5 millions. Even if the company is…

Problem 1. Our company is considering investing $5 million in R+D for a new product. There is a 50% chance the R+D will lead to a viable product. If we come up with a new product, we can build a facility to manufacture it in. This would cost $20 million. Demand for the product is uncertain. We've identified three likely scenarios: Scenario Revenue $25 million $35 $49 Probability Low Demand 20% Medium High 30% 50% Instead of making the product ourselves, another option is to sell the licensing rights to the product to another company. We can sell the rights for $12 million. Should we go ahead with the R+D project? If it's successful, should we make the product ourselves or sell the rights?