You are a fundraiser for SJSU. To raise funds, you can run either a telephone campaign or an email

Colaco currently has assets of $150,000 and wants to decide whether to market a new chocolate

avored soda, Chocola. Colaco has three alternatives.

Alternative 1 Test market Chocola locally, then utilize the results of the market study to determine

whether or not to market Chocola nationally.

Alternative 2 Immediately (without test marketing) market Chocola nationally.

Alternative 3 Immediately (without test marketing) decide not to market Chocola nationally.

In the absence of a market study, Cholaco believes that Chocola has a 55% chance of being a

national success and a 45% chance of a national failure. If Chocola is a national success, Colaco's

asset position will increase by $300,000, and if Chocola is a national failure, Colaco's asset position

will decrease by $100,000.

If Colaco perform a market study (at a cost of $30,000), there is a 60% chance that the study will

yield favorable results (referred to as a local success) and a 40% chance that the study will yield

unfavorable results (referred to as a local failure). If a local success is observed, there is an 85%

chance that Chocola will be a national success. If a local failure is observed, there is only a 10%

chance that Chocola will be a national success. If Colaco is riskneutral (wants to maximize its

expected final asset position), what strategy should the company follow?