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.
-Of the two software options,complicated software,now costing $15.5 million with a probability of success at 50%,and the simplified software,with a probability of a success at 65%,which one would the firm choose to develop if it can develop only one?
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.
-​Of the two software options,complicated software,now costing $15.5 million with a probability of success at 50%,and the simplified software,with a probability of a success at 65%,which one would the firm choose to develop if it can develop only one?
A)​The simple voice-activated software
B)The complicated thought-activated software
C)Neither of the software
D)​Need more information

Quizplus · Accepted Answer

To determine the expected value of each option, we use the following formula:

Expected Value = Probability of Success x Revenue - Cost

For the complicated software:
Expected Value = 0.5 x $50 million - $15.5 million = $9.5 million

For the simple software:
Expected Value = 0.65 x $10 million - $2 million = $4.5 million

Therefore, the expected value of the complicated software is higher than the expected value of the simple software. Therefore, the firm should choose to develop the complicated thought-activated software.

​Use the Following Information for Question

Use the Following Information for Question