Determine the expected value for each project and then rank the projects accordingly for the company to consider.

Nexcom Systems develops information technology systems for commercial sale. Each year it considers and evaluates a number of different projects to undertake. It develops a road map for each project in the form of a decision tree that identifies the different decision points in the development process from the initial decision to invest in a project€™s development through the actual commercialization of the final product.
The first decision point in the development process is whether or not to fund a proposed project for one year. If the decision is no, then there is no resulting cost; if the decision is yes, then the project proceeds at an incremental cost to the company. The company establishes specific short-term, early technical milestones for its projects after one year. If the early milestones are achieved, the project proceeds to the next phase of project development; if the milestones are not achieved, the project is abandoned. In its planning process, the company develops probability estimates of achieving and not achieving the early milestones. If the early milestones are achieved, then the project is funded for further development during an extended time frame specific to a project.

Transcribed Image Text:

Decision Outcomes/Event 230,000 PlEarly milestones-yesi 270,000 410,000 PiStrategic fit-yesl $7.300,000 -2000,000 3,800,000 -3,500,000 2,700,000 -1,300,000