Question: MacDonald Products Inc of Clarkson New York has the option
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 100,000 units at $ 550 each, with a probability of .6, and a .4 probability of 75,000 at $ 550. If, however, he uses the value analysis team ( option b), the firm expects sales of 75,000 units at $ 750, with a probability of .7, and a .3 probability of 70,000 units at $ 750. Value analysis, at a cost of $ 100,000, is only used in option b. Which option has the highest expected monetary value ( EMV)?
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