Question 28 • CREDIT RE-SEAT MNPS Integrated Math III IC S2 26-27
Answer:
To determine if the company should make the product, calculate the expected value (EV). First, find the profit (P) if successful: $240,000 $196,000 $44,000. If unsuccessful, the company loses the development cost, resulting in $196,000. Using the probabilities, EV ($44,000 * 0.75) ($196,000 * 0.25). EV $33,000 $49,000 $16,000. Since the expected average profit is $16,000, the company should not make the product.