Use the following information for question
Transcendent Technologies is deciding between developing a complicated thought-activated software,or a simple voice-activated software.Since the thought-activated software is complicated,it only has a 30% chance of actually going through to a successful launch,but would generate revenues of $50million if launched.The voice-activated software is simple and hence has a 80% chance of being launched but only generates a revenue of $10million.The complicated technology costs 10million,whereas the simple technology costs 2million.
-If the firm learns that the complicated technology can be made more stable with a few tweaks increasing the price to 15.5 million and increasing the probability of a launch to 50%.Given the new costs and probabilities of launch for the complicated software,which technology would the firm rather invest in now?
A)The simple voice-activated software
B)The complicated thought-activated software
C)Neither of the software
D)Need more information

Question

​Use the following information for question
Transcendent Technologies is deciding between developing a complicated thought-activated software,or a simple voice-activated software.Since the thought-activated software is complicated,it only has a 30% chance of actually going through to a successful launch,but would generate revenues of $50million if launched.The voice-activated software is simple and hence has a 80% chance of being launched but only generates a revenue of $10million.The complicated technology costs 10million,whereas the simple technology costs 2million.
-​If the firm learns that the complicated technology can be made more stable with a few tweaks increasing the price to 15.5 million and increasing the probability of a launch to 50%.Given the new costs and probabilities of launch for the complicated software,which technology would the firm rather invest in now?
A)​The simple voice-activated software
B)The complicated thought-activated software
C)Neither of the software
D)​Need more information

Quizplus · Accepted Answer

With the original information, the expected value (EV) of the complicated technology was: 
0.3 * $50mil - $10mil = $5mil 
And the EV for the simple technology was: 
0.8 * $10mil - $2mil = $6mil 
Therefore, the simple technology was the better choice. 
However, with the new information, the EV for the complicated technology changes to: 
0.5 * $50mil - $15.5mil = $9.5mil 
Which is now higher than the EV for the simple technology. Therefore, the firm would rather invest in the complicated thought-activated software with the revised probabilities and cost.

​Use the Following Information for Question

Use the Following Information for Question