Question 8 0.1 pts C&A;, a cellular phone manufacturer, is investigating the pos

Question

Question 8 0.1 pts C&A;, a cellular phone manufacturer, is investigating the possibility of producing and marketing a new line of phone. Undertaking this project will require either purchasing a CAD/CAM system or hiring and training several additional engineers, or purchasing a CAD/CAM system after a pilot study. The market for the product could be either favorable or unfavorable. With favorable acceptance by the market, sales would be 25,000 phones selling for $100 each, and with unfavorable acceptance, sales would be only 8,000 phones selling for $100 each. The cost of the CAD/CAM equipment is $500,000, but that of hiring and training three new engineers is only $375,000. However, manufacturing cost should drop from $50 each when manufacturing without CAD/CAM to $40 each when manufacturing with CAD/CAM. The probability of favorable acceptance of the new phone is 0.40; the probability of unfavorable acceptance is 0.60. The other option is to conduct a pilot study and then decide whether or not to purchase a CAD/CAM system. The pilot study will cost $10,000. C&A; will purchase the CAD/CAM system only if the result of the pilot study is positive. The probability of a positive pilot study is 50%. At this time, the probability of favorable acceptance of the new phone will be increased to 70%. All other costs and sales figures remain the same Which of the following statements is true about the decision to do a pilot study before deciding whether or not to purchase a CAD/CAM system? Check all that apply O C&A; will have a profit of $684,000 if the result of the pilot study is favorable O C&A; will have a loss of 30,000 if the pilot study is unfavorable O C&A; will have a profit of $15,000 if the result of the pilot study is unfavorable O C&A; will have a loss of $15,000 if the result of the pilot study is unfavorable O C&A; will have a profit of $990,000 if the result of the pilot study is favorable

Explanation / Answer

Since this question is already computed , I am not understanding the reason of the ask. As per your calculations, the options that you have to check are D and E.

The Company will profit by $990000 if the pilot study passes.

The company will be under a loss of $15,000, if the pilot study fails.(because $30,000-$15000=$15000)

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