Quantitative Analysis Task 5

Quantitative Analysis Task 5
Competency 309.3.3: Expected Value Decision Analysis

Task

A. Expected Value for each decision

Develop New Product

Decision Brach 1 – Develop Thoroughly

EV if Market reaction is good= $500.000(0, 4)= $200.000
EV if Market reaction is moderate= $25.000(0, 4)= $10.00
EV if Market reaction is poor= $1.000(0,2)=$200

Total EMV=$200.000+$10.000+200= $210.20

Decision Brach 2 – Develop Rapidly

EV if Market reaction is good= $500.000(0, 1)= $50.00
EV if Market reaction is moderate: $25.000(0, 2)=$5.00
EV if Market reaction is poor: $1.000(0,7)=$7.00

Total EMV= $50.00+$5.00+7.00=$55.700

Consolidate Existing Product

Decision Brach 3 – Strengthen Product

EV if Market reaction is good: $200.000(0, 3)=$60.000
EV if Market reaction is moderate: $10.000(0, 4)=$4.000
EV if Market reaction is poor: $3.000(0,3)=$900

Total EMV= $64.900

Decision Brach 4 – Reap Without Investing

EV if Market reaction is good:$10.000(0, 6)=$6.000
EV if Market reaction is moderate: $1.000(0, 4)=$400

Total EMV= $6.400

B. Most Favorable Total EMV

The decision alternative that has the most favorable Total Expected Value is to Develop New Product- Decision Brach 1 – Develop Thoroughly

This conclusion is made after analyzing the answer given above (task A). The objective of the company is to maximize profits therefore we compare the four EMV and chose the one with the highest value or the most favorable. It is taking into consideration the probability of the market reaction, and the highest predicted gain.

Most Favorable Total EMV=