Part 4: Alpha Medical Devices

Alpha Medical Devices designs and manufactures a variety of medical equipment devices and components. They have developed a new wireless pulse oximeter that is worn on a patient's finger to continuously measure their heart beat and can operate for over 24 hours on a single charge. Their revolutionary design is extremely power-efficient, and it has historically been the power requirement that prevented development of a wireless device.

When Alpha Medical designs a new product, they have three ways to monetize it:

1. Launch the product themselves, which has the greatest profit potential but also the greatest risk of losing money.
2. License the technology to another company for a fee plus a small share of any profits.
3. Sell the technology to another company.

There is significant uncertainty about the market size for this new device, however, and could either be a very large (probability 0.7) or very small (probability 0.3). All of the currently-used standard heart beat sensors must be physically connected to a monitor with a cable. The wireless sensor would reduce clutter by not needing the cable and could be used more consistently (the current wired sensors must often be removed to perform various activities). On the other hand, a wireless sensor would be easier to lose if it came off, and the hospital staff would need to make sure to regularly recharge the sensors.

The decision tree for the decision to Launch, License, or Sell, with the payoffs for each, is shown below:

NOTE: You may use Excel to answer the following questions, but you doNOTneed to upload a file for this part.

Flag question: Question 14Question 145pts

What is the Value of Control if Alpha Medical could choose the market outcome?

Answer in millions, with one decimal point. Do not include the "$" sign. Ex: $8,354,457.32 as 8.4

Flag question: Question 15Question 155pts

To better understand the market for the new device, and thus the best way to monetize it, Alpha Medical is considering running a pilot study with a few hospitals to get feedback from medical staff and patients.

What is the most value that information about the market could have? I.e., How much value would Alpha Medical gain if they knew whether the market was large or small before deciding how to monetize it?

Answer in millions, with one decimal point. Do not include the "$" sign. Ex: $8,354,457.32 as 8.4

Flag question: Question 16Question 1610pts

While informative, the pilot study would not be perfectly accurate.The result of the pilot study would either be "Good" or "Bad":

If there is actually a large market for the wireless sensor, the result of the pilot study will be "Good" with probability 0.71. If there is actually a small market for the wireless sensor, the result of the pilot study will be "Bad" with probability 0.75.

What is the probability the market will actually be large if the result of the pilot study is "Good"?

Answer as a probability between 0 and 1 with three decimal places. Ex: 0.684