Timey electronics is a producer of digital watches

Question # 00193179 Posted By: Prof.Longines Updated on: 02/11/2016 02:21 AM Due on: 02/11/2016
Subject Engineering Topic General Engineering Tutorials:
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  1. Timey electronics is a producer of digital watches. The company is considering expansion into one of two other product markets: (i) smart watches or (ii) digital music players. They have completed some preliminary market tests to confirm that a market exists for both products. If the smart watches are successfully developed, the company projects revenues of $1,000,000 over the next five years. If the digital music players are successfully developed, the company projects revenues of $400,000 over the next five years. The smart watch is a breakthrough product, which will require significant research and development (R&D) investments. There is only a 5% chance that the development of the smart watch will be successful. The company estimates that product development for the smart watch will be $100, 000. The digital music players will only cost $10,000 of research and development (R&D) investments. There is an 80% chance that the development of the digital music player will be successful. For both products, if the NPD process is not successful, then Timey will not realize any revenues. If the product development of either of these products is successful, then Timey will discontinue sales of the digital watches and reallocate the current production capacity from the production of digital watches to the production of the new product. Alternatively, if Timey decides not to produce either the smart watches or the digital music players, then it will continue to produce its digital watches at the currently output volume. If they continue selling its digital watches, the company projects revenues of $225,000 over the next five years. Questions: What will Timey decide to do, if(a) they use an Expected Value decision criteria(b) they use a Maximax criteria(c) they use a Maximin criteria?Please show all calculations wherever required.
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