Question

Perform a sensitivity analysis on the probability of a great market. To do this, enter formulas in cells B9 and B10 (see Figure 6.4) to ensure that the probabilities of “fair” and “awful” remain in the same ratio, 35 to 20, and that all three probabilities continue to sum to 1. Then let the probability of “great” vary from 0.25 to 0.50 in increments of 0.05. Is it ever best to abandon the product in this range? Please provide it as per Excel.

Acme single-stage new product decision
Decision 1: Continue development and market the new product
Fixed cost	$6,000
Unit margin	$18
Market	Probability	Sales volume	Net revenue
Great	0.45	600	$10,800
Fair	0.35	300	$5,400
Awful	0.20	90	$1,620
EMV
Decision 2: Stop development and abandon product
No payoffs, no costs, no uncertainty
EMV

Answer 1