Question
Mindgames Inc., a maker of video games, is considering the release of their new simulation game. If the game is a success, they expect to
Mindgames Inc., a maker of video games, is considering the release of their new simulation game. If the game is a success, they expect to earn a present value of $15 million. However, if the game is a failure, they will incur a loss of $1 million (present value). There is a 50% chance of success (and so a 50% chance of failure). Alternatively, they can delay (by one year) the release and spend $2 million to undergo further beta testing. If they do so, they will improve the game and increase the probability of success to 75%. The relevant discount rate is 15%. Should Mindgames go for the beta testing?
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