MacDonald Products, Inc., of Clarkson, New York, has the option of (a) proceeding immediately with production of a new top-of-the-line stereo TV that has just completed prototype testing or (b) having the value analysis team complete a study. If Ed Lusk, VP for operations, proceeds with the existing prototype (option a), the firm can expect sales to be 85 comma 000 units at $540 each, with a probability of 0.74 and a 0.26 probability of 65 comma 000 at $540. If, however, he uses the value analysis team (option b), the firm expects sales of 90 comma 000 units at $750 , with a probability of 0.75 and a 0.25 probability of 60 comma 000 units at $750. Value engineering, at a cost of $105 comma 000 , is only used in option b. Which option has the highest expected monetary value (EMV) ?
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MacDonald Products, Inc., of Clarkson, New York, has the option of (a) proceeding immediately with production of a new top-of-the-line stereo TV that has just completed prototype testing or (b) having the value analysis team complete a study.
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