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Transcendent Technologies is deciding between developing a complicated thought-activated software,or a simple voice-activated software.Since the thought-activated software is complicated,it only has a 30% chance of actually going through to a successful launch,but would generate revenues of $50million if launched.The voice-activated software is simple and hence has a 80% chance of being launched but only generates a revenue of $10million.The complicated technology costs 10million,whereas the simple technology costs 2million.
-What is the expected revenue from developing the complicated software?
A)$10million
B)$15million
C)$20million
D)$50million

Question

​Use the following information for question
Transcendent Technologies is deciding between developing a complicated thought-activated software,or a simple voice-activated software.Since the thought-activated software is complicated,it only has a 30% chance of actually going through to a successful launch,but would generate revenues of $50million if launched.The voice-activated software is simple and hence has a 80% chance of being launched but only generates a revenue of $10million.The complicated technology costs 10million,whereas the simple technology costs 2million.
-​What is the expected revenue from developing the complicated software?
A)​$10million
B)$15million
C)$20million
D)​$50million

Quizplus · Accepted Answer

To calculate the expected revenue, we need to multiply the probability of a successful launch with the revenue generated:
Expected revenue from the complicated software = 0.3 x $50million = $15million
Expected revenue from the simple software = 0.8 x $10million = $8million
Total cost of complicated software = $10million
Total cost of simple software = $2million
Expected profit from complicated software = $15million - $10million = $5million
Expected profit from simple software = $8million - $2million = $6million
Since the expected profit is higher for developing the simple software, it is the best choice.

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