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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 simplified version costs $2 million and its probability of success is 75%,whereas the cost of the complicated version is $10million,what is the minimum probability of success for the complicated version that would make the firm indifferent between the two software?
A)0.3
B)0.31
C)0.32
D)0.33

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​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 simplified version costs $2 million and its probability of success is 75%,whereas the cost of the complicated version is $10million,what is the minimum probability of success for the complicated version that would make the firm indifferent between the two software?
A)​0.3
B)0.31
C)0.32
D)​0.33

Quizplus · Accepted Answer

To find the minimum probability of success for the complicated version that would make the firm indifferent between the two software options, we need to set up an equation:

Expected revenue from complicated version = Expected revenue from simple version
0.3($50 million) - $10 million = 0.75($10 million) - $2 million

Solving for the probability of success for the complicated version:
0.3($50 million) - $10 million = 0.75($10 million) - $2 million
$5 million - $10 million = $7.5 million - $2 million
-$5 million = $5.5 million
-1 = 0.55

Therefore, we need the probability of success for the complicated version to be at least 0.31 (or 31%) to make the firm indifferent between the two options. Since this is higher than the given probability of 0.3, the best choice would be to develop the simple voice-activated software with a probability of success of 80%.

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