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?
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?
Essentials of Business Analytics (MindTap Course List)
2nd Edition
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Chapter5: Probability: An Introduction To Modeling Uncertainty
Section: Chapter Questions
Problem 18P: The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin...
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![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
Probability
Revenue
$25 million
$35
$49
Low Demand
20%
Medium
30%
High
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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9ad8797d-07d4-4022-a82e-a28a39312f04%2Fd245b6b4-b600-4c45-b7f5-94e069772b99%2Fwe1vlmr_processed.png&w=3840&q=75)
Transcribed Image Text: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
Probability
Revenue
$25 million
$35
$49
Low Demand
20%
Medium
30%
High
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?
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