This question is customized based on your student ID. Suppose your student ID is ".........ABG", where AB are the last two digits and G refers to "graduate". Then, the last digit of your ID is B, and the second-to-last digit is A. ( A=9, B=2 ).

You are a manager at a startup company, which is specialized in designing and producing drone. You are considering two product innovation options. Option A is to produce a cheap model with basic functions, and option B is to product an expensive model with superior camera and stability functions. The design team estimates that the initial investment (in Year 0) for option A is $2M and for option B is $4M, and it would take one year to develop the drone of each option with a development cost of $1M (in Year 1). There exist technical risk and commercial risk for both options. The probability of technical success for option A is 0.8 and for option B is 0.7. If it is a technical failure, the innovation will end up with no successful drone in the end of Year 1 and the company is not able to earn any revenue; if it is a technical success, the company is able to launch the developed drone to the market in Year 2 at an estimated launching cost $2.X million, where X is the last digit of your student ID number(X=2).

The developed drone could be commercially success or failure. Commercial success means the demand of the developed drone is high, whereas commercial failure means the demand of the developed drone is low. The probability of commercial success for basic drone (option A) is 0.65 and for advanced drone (option B) is 0.8. If it is a commercial success, the company expects to earn net revenue of $3.Y M per year from selling the basic drone and $4.Y M per year from selling the advanced drone for 4 years (from Year 2 to Year 5), where Y is the second-to-last digit of your ID number. If it is a commercial failure, the company expects to only earn net revenue of $0.6M per year from selling the basic drone for 3 years and $1.3M per year from selling the advanced drone for 3 years (from Year 2 to Year 4). The required rate of return is 1X%,where X is the last digit of your student ID number. You want to choose one of the two options as product innovation. The detailed information is summarized in the following table(Y=9).

Option A Basic Model Option B Advanced Mode] [nitial Investment Development Cost $2M (at Year 0] $1M in Year 1 $4M (at Year 0) $1M in Year 1 Technical Success Rate 0.8 0.7 Commercial Success Rate Launching Cost 0.65 $2; M (at Year 2} 0.8 $2lM (at Year 2} Net Revenue of Commercial Success $3.! M (per year} From Year 2 to Year 5 $4.1 M (per year) From Year 2 to Year 5 Net Revenue of Commercial Failure $0.6M (per year) From Year 2 to Year 4 $1.3M {per year} From Year 2 to Year 4