Specialized Products Inc. (SPI) is considering a one-year manufacturing run for one of the two new...

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Specialized Products Inc. (SPI) is considering a one-year manufacturing run for one of the two new products: a temperature sensor or a pressure sensor. The market for each product is known, if the products can be successfully developed. However, there is some chance that it will not be possible to successfully develop them, given the time limitations. If the development is unsuccessful for a product, then there will be no sales, and the development cost will be totally lost. The probability of development success is 50% for the temperature sensor and 70% for the pressure sensor. Development cost would be $100,000 for the temperature sensor and $10,000 for the pressure sensor. If the development is successful, then a net revenue of $1,000,000 would be realized from selling the temperature sensor and a net revenue of $600,000 would be realized from selling the pressure sensor. Both of these amounts are net of production costs, but do not include development costs. Assume that all of the cash flows will happen at the end of the year and use an annual discount rate of 10%. For SPI, calculate and report the expected net present value (NPV) of profits for each option. Specialized Products Inc. (SPI) is considering a one-year manufacturing run for one of the two new products: a temperature sensor or a pressure sensor. The market for each product is known, if the products can be successfully developed. However, there is some chance that it will not be possible to successfully develop them, given the time limitations. If the development is unsuccessful for a product, then there will be no sales, and the development cost will be totally lost. The probability of development success is 50% for the temperature sensor and 70% for the pressure sensor. Development cost would be $100,000 for the temperature sensor and $10,000 for the pressure sensor. If the development is successful, then a net revenue of $1,000,000 would be realized from selling the temperature sensor and a net revenue of $600,000 would be realized from selling the pressure sensor. Both of these amounts are net of production costs, but do not include development costs. Assume that all of the cash flows will happen at the end of the year and use an annual discount rate of 10%. For SPI, calculate and report the expected net present value (NPV) of profits for each option.

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