Answer in Excel:

1. Create a decision tree

2. What is the optimal solution and what is the max expected value

3. What is the EVPI

4. What is the EVSI

Edelman Electronics was exploring a totally new market of manufacturing electronic components for home use. The heart of the system is the master control box. The research team estimated that it would cost $500,000 to develop equipment and procedures needed to manufacture the master control box and accessories. If successful, this venture could increase sales by approximately $2 million. But would the master control boxes be a successful venture? With a 60% chance of success estimated by the research team, the table below lists the payoffs. Choice/Decision Market Don't Market States of Nature Success Not Success 1.5 -0.5 0 0 Edelman management has serious doubts about trying to market the master control boxes even though they liked the basic idea. Because of their reservations, Steve decided to send requests for proposals (RFPs) for additional marketing research to 30 marketing research. The only proposal returned came back from a small company called Marketing Associates, Inc. (MAI), which would charge $100,000 for the survey. According to its proposal, MAI has been in business for about three years and has conducted about 100 marketing research projects. MAI's major strengths appeared to be individual attention to each account, experienced staff, and fast work. Steve was particularly interested in one part of the proposal which revealed MAI's success record with previous accounts, which is: P(FSS) = 0.667 P(FS|S') =0.125 P(OKS)=0.25 P(OK S') = 0.375 P(FS'S)=0.083 P(FS'S') = 0.5 Where: FS = Favorable survey result; OK = OK survey result; FS' = unfavorable survey results; S = successful venture; S' unsuccessful venture. Edelman Electronics was exploring a totally new market of manufacturing electronic components for home use. The heart of the system is the master control box. The research team estimated that it would cost $500,000 to develop equipment and procedures needed to manufacture the master control box and accessories. If successful, this venture could increase sales by approximately $2 million. But would the master control boxes be a successful venture? With a 60% chance of success estimated by the research team, the table below lists the payoffs. Choice/Decision Market Don't Market States of Nature Success Not Success 1.5 -0.5 0 0 Edelman management has serious doubts about trying to market the master control boxes even though they liked the basic idea. Because of their reservations, Steve decided to send requests for proposals (RFPs) for additional marketing research to 30 marketing research. The only proposal returned came back from a small company called Marketing Associates, Inc. (MAI), which would charge $100,000 for the survey. According to its proposal, MAI has been in business for about three years and has conducted about 100 marketing research projects. MAI's major strengths appeared to be individual attention to each account, experienced staff, and fast work. Steve was particularly interested in one part of the proposal which revealed MAI's success record with previous accounts, which is: P(FSS) = 0.667 P(FS|S') =0.125 P(OKS)=0.25 P(OK S') = 0.375 P(FS'S)=0.083 P(FS'S') = 0.5 Where: FS = Favorable survey result; OK = OK survey result; FS' = unfavorable survey results; S = successful venture; S' unsuccessful venture