A company is considering whether to develop and market a new product. Development costs are estimated to be £180000, and there is a 0.75 probability that the development effort will be successful and a 0.25 probability that the development effort will be unsuccessful. If the development is successful, the product will be marketed, and it is estimated that 1. If the product is very successful profits will be £540 000.

2. If the product is moderately successful profits will be £100 000.

3. If the product is a failure, there will be a loss of £400 000.

Each of the above profit and loss calculations is after taking into account the development costs of

£180 000. The estimated probabilities of each of the above events are as follows:

1. Very successful 0.4 2. Moderately successful 0.3 3. Failure 0.3