A. Calculate the expected value for each of the four decision branches, showing all work or reasoning.
Develop Thoroughly = ((0.4*$500,000)+(0.4*$25,000)+(0.2*$1,000)) = $210,200
Develop Rapidly = ((0.1*$500,000)+(0.2*$25,000)+(0.7*$1,000)) = $55,700
Strengthen Product = ((0.3*$200,000)+(0.4*$10,000)+(0.3*$3,000)) = $64,900
Reap without Investing = ((0.6*$10,000)+(0.4*$1,000)) = $6,400
B. Determine the decision alternative that has the most favorable total expected value.
1. Explain how you reached your determination in part B, comparing the results from the 4 decisions branches from part A.
Obviously after the calculated expected value for each decision branch, develop thoroughly would have the most favorable total expected value out of the four areas.
It would make the most sense for the company to continue to develop items with the highest expected value. If they were to consolidate and attempt to strengthen their products or reap without investing the gains they would yield would be far less than if they were to spend the time and money to thoroughly develop new products. As there is not any specific information on the items in question in the decision branches I have to base my determination off of the market reactions and predicted gains of each branch. At the same time the developing thoroughly branch also has higher predicted gains on the good and moderate market reaction branches while also have a lower probability of poor market reaction than the other decision branches.