Techware Incorporated is considering the introduction of two new software products to the market. The company has four options regarding these products: introduce neither product, introduce product 1 only, introduce product 2 only, or introduce both products. Research and development costs for products 1 and 2 are $180,000 and $150,000, respectively. Note that the first option entails no costs because research and development efforts have not yet begun. The success of these software products depends on the national economy in the coming year. The company's revenues, depending on its decision and the state of the economy, are given in the file P09_33.xlsx. The probabilities of a strong, fair, or weak economy in the coming year are assessed to be 0.10, 0.60, and 0.30, respectively. a. Use PrecisionTree to identify the strategy that maximizes Techware's expected net revenue. Techware's optimal decision is to introduce Select: both products - product 1 only - product 2 only - neither product. By following this strategy, Techware can expect to earn $? in net revenue. b. Perform a sensitivity analysis on the optimal decision, letting each of the inputs vary one at a time plus or minus 25% from its base value, and summarize your findings. Which of the inputs appears to have the largest effect on the best solution? The R&D cost for Select: both products - product 1 only- product 2 only - neither product, and revenue for product introduction in the case of a Select strong- fair - weak, national economy, have the largest effect on the best solution.
Techware Incorporated is considering the introduction of two new software products to the market. The company has four options regarding these products: introduce neither product, introduce product 1 only, introduce product 2 only, or introduce both products. Research and development costs for products 1 and 2 are $180,000 and $150,000, respectively. Note that the first option entails no costs because research and development efforts have not yet begun. The success of these software products depends on the national economy in the coming year. The company's revenues, depending on its decision and the state of the economy, are given in the file P09_33.xlsx. The probabilities of a strong, fair, or weak economy in the coming year are assessed to be 0.10, 0.60, and 0.30, respectively.
a. Use PrecisionTree to identify the strategy that maximizes Techware's expected net revenue.
Techware's optimal decision is to introduce Select: both products - product 1 only - product 2 only - neither product. By following this strategy, Techware can expect to earn $? in net revenue.
b. Perform a sensitivity analysis on the optimal decision, letting each of the inputs vary one at a time plus or minus 25% from its base value, and summarize your findings. Which of the inputs appears to have the largest effect on the best solution?
The R&D cost for Select: both products - product 1 only- product 2 only - neither product, and revenue for product introduction in the case of a Select strong- fair - weak, national economy, have the largest effect on the best solution.
| Introduction of new products | ||||
| Trend in national economy | ||||
| Strong | Fair | Weak | ||
| Decisions | Introduce neither product | $0 | $0 | $0 |
| Introduce Product 1 only | $500,000 | $260,000 | $120,000 | |
| Introduce Product 2 only | $420,000 | $230,000 | $110,000 | |
| Introduce both products | $820,000 | $390,000 | $200,000 |
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