Question: Manfred Inc. is developing a new product. There is a $4 million development cost and $2 million costs of marketing, the latter incurred only if

Manfred Inc. is developing a new product. There is a $4 million development cost and $2 million costs of marketing, the latter incurred only if the product is successful and the company decides to market it. There is a 25% probability of technological failure. There are three possible market conditions if the product is marketed.

Market	Probability	Sales Volume	Net Revenue (in 1000s)
Great	0.45	600	10800
Fair	0.35	300	5400
Awful	0.20	90	1620

The following architecture of the decision tree is presented for this problem.

Manfred Inc. Decision Tree

What is the expected value at node 2 (accounting for development and marketing costs) in 1000s of dollars? (Provide 1 place of decimal)

Assuming risk neutral decision making, which of the following is correct for Manfred Inc. decisions?

Question 13 options:

	Manfred should develop the product and market it if successful
	Manfred should not develop the product
	Manfred should develop the product but should not market it

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