Answered step by step
Verified Expert Solution
Question
1 Approved Answer
PLEASE POST ONLY THE ANSWER FOR C, I DONT NEED AN EXPLANTION Problem 13-17 (Algorithmic) Hemmingway, Inc., is considering a $6 million research and development
PLEASE POST ONLY THE ANSWER FOR C, I DONT NEED AN EXPLANTION
Problem 13-17 (Algorithmic) Hemmingway, Inc., is considering a $6 million research and development (R&D) project. Profit projections appear promising, but Hemmingway's president is concerned because the probability that the R&D project will be successful is only 0.60. Furthermore, the president knows that even if the project is successful, it will require that the company build a new production facility at a cost of $20 million in order to manufacture the product. If the facility is built, uncertainty remains about the demand and thus uncertainty about the profit that will be realized. Another option is that if the R&D project is successful, the company could sell the rights to the product for an estimated $27 million. Under this option, the company would not build the $20 million production facility FIGURE 13.18 DECISION TREE FOR HEMMINGWAY, INC. Profit (S millions) High Demand 34 0.5 Building Facility ($20 millionMedium Demand 0.3 Low Demand 0.2 Successful 0.6 Start R&D Project (S6 million) Sell Rights Not Successful -6 0.4 Do Not Start the R&D Project 0 The decision tree is shown in Figure 13.18. The profit projection for each outcome is shown at the end of the branches. For example, the revenue projection for the high demand outcome is $60 million. However, the cost of the R&D project ($6 million) and the cost of the production facility ($20 million) show the profit of this outcome to be $60 $6-$20 = $34 million. Branch probabilities are also shown for the chance eventsStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started