Assume XYZ corporation has been presented with a new product development project proposal. The cost of the development project is $500,000. The probability of successful development is projected to be 70%.

Additional Information

a. If the development is unsuccessful, the product will be terminated.

b. If it is successful, the manufacturer must then decide whether to begin manufacturing the product on a new production line or a modified production

 line.

c. If demand for the new product is high, the incremental revenue for a new production line is expected to be $1,200,000, and the incremental revenue for the modified production line is expected to be $850,000.

d. If demand is low, the incremental revenue for the new production line is expected to be $700,000, and the incremental revenue for the modified

the production line is expected to be $150,000.

e. All of these incremental revenue values are gross figures, i.e. before subtracting the $500,000 development cost, and $300,000 for the new production line or $100,000 for the modified production line.

f. The probability of high demand is estimated as 40%, and of low demand as 60%. Based on the risk description given in case 5, answer the following questions

1. Structure the Problem

2. Assess Payoffs

3. Assess Probabilities

4. calculate the expected monetary values (EMV)