Trident's Analysis of Chineese Market Revenues High Low Expected value Value (in millions) $130 $50 $90

Probability 0.5 0.5 Expected Value (in millions) $65.00 $25.00

Cost High Medium Low Expected value Expected project gross profit = revenues - cost =$90-$80 = $10. $120 $80 $40 0.33 0.33 0.33 $40.00 $26.67 13.33 $80.00

Trident's Option Analysis of Chineese Market

Identified Development Cost

If the frim invests an additional $15 million in market research and development, it will be able to identify market development cost.

Estimated Gross Operating Profit

High Cost ($120)

Decide to Stop $90-$120 = ($30)

Invest in R&D ($15)

Medium Cost ($80)

Decide to Proceed $90-$80 = $10

Low Cost ($40)

Decide to Proceed $90-$40 = $50

Time

Investing in the market R&D is equivalent to buying a call option. Amounts are in millions Expected Value = ($15) - [(0.333 x $0) + (0.333 x $10) + (0.333 x $50)] = $20

Trident's Analysis of Chineese Market Revenues High Low Expected value Value (in millions) $130 $50 $70 Probability 0.25 0.75 Expected Value (in millions) $32.50 $37.50

ue (in millions)

Cost High Medium Low Expected value Expected project gross profit = revenues - cost =$70-$80 = ($10). $120 $80 $40 0.33 0.33 0.33 $40.00 $26.67 13.33 $80.00

Trident's Option Analysis of Chineese Market

Identified Development Cost

Estimated Gross Operating Profit

Decide to Stop

$90-$120 = ($30)

If the frim invests an additional $15 million in market research and development, it will be able to identify market development cost.

Estimated Gross Operating Profit

High Cost ($120)

Decide to Stop $70-$120 = ($50)

Decide to Proceed

$90-$80 = $10

Invest in R&D ($15)

Medium Cost ($80)

Decide to Stop $70-$80 = ($10)

Decide to Proceed

$90-$40 = $50

Low Cost ($40)

Decide to Proceed $70-$40 = $30

Time

on. Amounts are in millions

Investing in the market R&D is equivalent to buying a call option. Amounts are in milli Expected Value = ($15) - [(0.333 x $0) + (0.333 x $0) + (0.333 x $30)] = $10

Project is not acceptable under both decision - making methodologies. Since the

lue (in millions)

Estimated Gross Operating Profit

ecide to Stop

70-$120 = ($50)

ecide to Stop

70-$80 = ($10)

ecide to Proceed

70-$40 = $30

ption. Amounts are in millions