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C Secure https://www.mathxl.co Student PlayerHomework-asp ?homeworkId-477654147&questionidel; 1&flushed-false;&cld-4912168;&back-DoAssignments; E MKT364-006 omniyyah fallatah | 3/23/18 1:14 AM Homework: HW6: Products Design Score: 0 of 1 pt Problem 5.22 Save 11 of 20 (18 complete) Hw score: 90%, 18 of 20 pts Question Help MacDonald Products, Inc., of Clarkson, New York, has the option of (a) proceeding immediately with production of a new top-of-the-line stereo TV that has just completed prototype testing or (b) having the value analysis team complete a study. If Ed Lusk, VP for operations, proceeds with the existing prototype (option a), the firm can expect sales to be 110,000 units at $560 each, with a probability of 0.27 and a 0.73 probability of 80,000 at $560. If, however, he uses the value analysis team (option b), the firm expects sales of 90,000 units at $730, with a probability of 0.72 and a 0.28 probability of 65,000 units at $730, Value engineering, at a cost of $85,000, is only used in option b. Which option has the highest expected monetary value (EMV)? The EMV for option a is S and the EMV for option b is STherefore, option has the highest expected monetary value. (Enter your responses as integers) .. 1 1.1 Í Vì | :/ì 1, | (u) More Enter your answer in the edit fields and then click Check Answer. All parts showing Clear All Check AnswerExplanation / Answer
a) proceeding immediately:
expected payout with probability 0.27 = 110000*560 = 61600000
expected payout with probability 0.73 = 80000*560 = 44800000
total expected value = 0.27*61600000 + 0.73*44800000 = 16632000 + 32704000 = 49336000
option b)
doing the study cost = 85000
expected value with probability 0.72 = 90000*730 = 65700000
expected value with probability 0.28 = 65000*730 = 47450000
total expected value = 65700000*0.72 + 47450000*0.28 = 47304000 + 13286000 = 60590000
Hence EMV for option A is 49336000, EMV for option B is 60590000.
therefore option B has the highes EMV.
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