Alternative 1 Test market Chocola locally, then utilize the results of the market study to determine whether or not to market Chocola nationally.

Alternative 2 Immediately (without test marketing) market Chocola nationally.

Alternative 3 Immediately (without test marketing) decide not to market Chocola nationally.

In the absence of a market study, Colaco believes that Chocola has a 55% chance of being a national success and a 45% chance of being a national failure. If Chocola is a national success, Colaco’s asset position will increase by $300,000, and if Chocola is a national failure, Colaco’s asset position will decrease by $100,000.

If Colaco performs a market study (at a cost of $30,000), there is a 60% chance that the study will yield favorable results (referred to as a local success) and a 40% chance that the study will yield unfavorable results (referred to as a local failure). If a local success is observed, there is an 85% chance that Chocola will be a national success. If a local failure is observed, there is only a 10% chance that Chocola will be a national success.

If Colaco is risk-neutral (wants to maximize its expected final asset position), what strategy should the company follow?