Question

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 80 comma 00080,000 units at ​$510510 ​each, with a probability of 0.370.37 and a 0.630.63 probability of 65 comma 00065,000 at ​$510510. ​if, however, he uses the value analysis team​ (option b), the firm expects sales of 80 comma 00080,000 units at ​$720720​, with a probability of 0.630.63 and a 0.370.37 probability of 65 comma 00065,000 units at ​$720720. value​ engineering, at a cost of ​$85 comma 00085,000​, is only used in option
b. which option has the highest expected monetary value​ (emv)? the emv for option a is ​$ nothing and the emv for option b is ​$ nothing. ​the

Answer 1

Answer: The expected monetary value of option a is $35,980,500  and the Expected monetary value of option b is $53,519,000 .

We follow these steps to arrive at the emv.

Option A    

Probability - c             Price per unit -p                No. of units - n            n*p* c

    0.37                              510                               80000                15096000  

    0.63                              510                                65000                20884500

Expected Monetary Value                                                          35980500

Option B    

  Probability - c     Price per unit -p                   No. of units - n            n*p* c

     0.63                               720                                   80000                 36288000

      0.37                               720                                   65000                  17316000

Total                                                                                            53604000

Less: Value engineering cost                                                               -85000

Expected Monetary Value                                                            53519000