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Which option has the highest expected monetary value

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MacDonald Products, Inc., of Clarkson, New York, has the option of (a) proceeding immediately with production of a new top-of-the-line stereo TV that has just completed prototype testing or (b) having the value analysis team complete a study. If Ed Lusk, VP for operations, proceeds with the existing prototype (option a), the firm can expect sales to be 100,000 units at $550 each, with a probability of .6, and a .4 probability of 75,000 at $550. If, however, he uses the value analysis team (option b), the firm expects sales of 75,000 units at $750, with a probability of .7, and a .3 probability of 70,000 units at $750. Value analysis, at a cost of $100,000, is only used in option b. Which option has the highest expected monetary value (EMV)?

Reference no: EM131353815

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