Question
An independent television network, EM-TV, is considering either producing a pilot episode for a certain television show idea or selling the rights to the idea
An independent television network, EM-TV, is considering either producing a pilot episode for a certain television show idea or selling the rights to the idea to another company. If the pilot episode is produced, it may either be rejected or accepted by the studio producers.
The cost of producing the pilot episode is $150,000. If it is accepted by the studio producers, the pilot is estimated to be worth approximately $700,000. If the studio producers do not accept the pilot it is worthless. The probability that the pilot is accepted by the studio's producers is 40% based on historical experience. If they do not produce the pilot and sell the rights to another company, the network will make $100,000 on that deal.
What is the expected monetary value of the decision to produce the pilot episode for EM-TV?
A. -$150,000
B, $0
C. $130,000
D. $700,000
E. None of the answers are correct.
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