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Computex Corporation Computex is a new company in the computer peripheral equipment field. It has one product which has been marketed and is in the process of developing a new graphical display terminal. The chief engineer, Mr. Renap, has developed two approaches to the design. One is rather conventional and would fill out the line with little development expense ($50,000) but would not be much different from other products on the market. The other possiblity involves a radical departure from terminals now available. It is January 1977 and if the company is to proceed with development of the graphics terminal as part of the normal R&D effort, it must make some decisions now. The radical approach depends upon the development of a special display screen, which in turn depends critically on the quality of a new coating material. Renap's investigation of this new coating material leads him to believe that there is about a 30% chance that it will be high quality, 50% medium, and 20% low quality. He will not know for sure until July, 6 months from now. If the company pursues the radical approach, it will have to make a commitment now to develop the prototype. This effort is expected to cost $30,000 over the next 6 months. If the company makes a commitment to develop the prototype, two options will be open to the company after learning about the material quality. They can continue with the development at an additional cost of $100,000 or revert to a conventional approach which can take advantage of some of the prototype work already completed and be finished for an additional $40,000. If the company does not pursue either approach now, it could begin a crash program in July and finish the conventional approach with a total cost of $100,000. The sales manager investigated the market for the new product and found that it would be sensitive not only to the overall approach, radical versus conventional, but also to the characteristics that result from the qualtity of the coating material. He has also determined that because of the rapid obsolescence factor in this field, the life cycle of either product will be 2 years. His sales forecasts, given below, reflect this factor and are estimates of net contribution (excluding development cost) over the 2-year sales period. Radical high quality: $300,000 Radical ---medium quality: $200,000 Radicallow quality: $100,000 Conventional: $150,000 Diagram the problem faced by Computex, showing cash flows and the net contributions for each end point. Do not try to determine the best action for Computex. Computex Corporation Computex is a new company in the computer peripheral equipment field. It has one product which has been marketed and is in the process of developing a new graphical display terminal. The chief engineer, Mr. Renap, has developed two approaches to the design. One is rather conventional and would fill out the line with little development expense ($50,000) but would not be much different from other products on the market. The other possiblity involves a radical departure from terminals now available. It is January 1977 and if the company is to proceed with development of the graphics terminal as part of the normal R&D effort, it must make some decisions now. The radical approach depends upon the development of a special display screen, which in turn depends critically on the quality of a new coating material. Renap's investigation of this new coating material leads him to believe that there is about a 30% chance that it will be high quality, 50% medium, and 20% low quality. He will not know for sure until July, 6 months from now. If the company pursues the radical approach, it will have to make a commitment now to develop the prototype. This effort is expected to cost $30,000 over the next 6 months. If the company makes a commitment to develop the prototype, two options will be open to the company after learning about the material quality. They can continue with the development at an additional cost of $100,000 or revert to a conventional approach which can take advantage of some of the prototype work already completed and be finished for an additional $40,000. If the company does not pursue either approach now, it could begin a crash program in July and finish the conventional approach with a total cost of $100,000. The sales manager investigated the market for the new product and found that it would be sensitive not only to the overall approach, radical versus conventional, but also to the characteristics that result from the qualtity of the coating material. He has also determined that because of the rapid obsolescence factor in this field, the life cycle of either product will be 2 years. His sales forecasts, given below, reflect this factor and are estimates of net contribution (excluding development cost) over the 2-year sales period. Radical high quality: $300,000 Radical ---medium quality: $200,000 Radicallow quality: $100,000 Conventional: $150,000 Diagram the problem faced by Computex, showing cash flows and the net contributions for each end point. Do not try to determine the best action for Computex