Risk in developing a new product

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Reference no: EM131004179

You have been asked to use the expected-value model to assess the risk in developing a new product. Each strategy requires a different sum of money to be invested and produces a different profit payoff as shown below: States of NatureStrategy Complete Failure Partial Success Total SuccessS1 <$50K> 70K S2 20K 40K S3 0 50K S4 150K S5 0 0 0Assume that the probabilities for each state are 30 percent, 50 percent, and 20 percent, respectively.a. Using the concept of expected value, what risk (i.e., strategy) should be taken? b. If the project manager adopts a go-for-broke attitude, what strategy should be selected? c. If the project manager is a pessimist and does not have the option of strategy S5, what risk would be taken? d. Would your answer to part c change if strategy S5 were an option?

Reference no: EM131004179

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