R&D COSTS

STAGE I Process R&D cost = #NAME?

STAGE I Market development cost = #NAME?
TOTAL STAGE I COST = #NAME?

STAGE II process development cost = #NAME? ← NOTE:

Costs are shown here as negative amoun
STAGE II market development cost = #NAME? use in the decision tree. NPVs are reven
TOTAL STAGE II COST = #NAME? shown as positive amounts for use in t
decision tree.
STAGE III Final development cost = #NAME?
TOTAL (STAGE I, II, III) R&D COSTS = #NAME?

NPV (not accounting for R&D costs) if new AQ venture

#NAME?
succeeds =
NPV (not accounting for R&D costs) if new AQ venture ← NOTE:
$ -
fails = NPV is zero if the venture fa

SUCCESS PROBABILITIES
Probability(Process found) = #NAME?
Probability(Market potential significant) = #NAME?
Probability(Both, i.e., Success at STAGE I) = #NAME?
Probability (Failure at STAGE I) = #NAME?

Probability(Board approves final development) = #NAME?

Probability(Board denies approval) = #NAME?

Probability(Product succeeds after launch) = #NAME?

Probability(Product fails after launch) = #NAME?

EXPECTED NET PROFIT FROM PROCEEDING WITH AQ = #NAME? #NAME?

Probability of profit #NAME?

Expected Moneray Value to move ahead #NAME? #NAME?

Since the EMV is positive, this would typically suggest that it is financially worthwhile to proceed with the investment in R&D

Terminal Outcome Net revenue Probability

Failure at Stage I #NAME? #NAME?
Failure at stage II #NAME? #NAME?
Failure at stage III #NAME? #NAME?
Success at stage III #NAME? #NAME?
 CONSTRUCT THE DECISION TREE BELOW. START BY PLACING THE CURSOR IN CEL
SOLVER WILL SHIFT THE TREE DOWN AS NEEDED, WHEN YOU ADD NODES AN

← NOTE: IN THE DECISION TREE:

are shown here as negative amounts for FOR COSTS USE CELLS B4, B8, and B10;
n the decision tree. NPVs are revenues, FOR REVENUES (NPV) USE CELLS B13 AND B14;
own as positive amounts for use in the FOR PROBABILITIES USE CELLS B19, B20, B22, B23, B25, AND B2
decision tree.
USE ANALYTIC SOLVER TO SIMULATE EXPECTED NET PROFIT FROM AQ IN CEL
"+PsiOutput()" FUNCTION, AS SHOWN IN EXAMPLE 16.11 OF THE EVA
IN A BRIEF REPORT TO THE BOARD, SUMMARIZE YOUR FINDINGS USING PICTUR

← NOTE:
NPV is zero if the venture fails.

oceed with the investment in R&D

EMV
#NAME?
#NAME?
#NAME?
#NAME?
 Process R&D costs

#NAME? #NAME?

#NAME?
#NAME?

Stop development

0 0
PLACING THE CURSOR IN CELL E30. (ANALYTIC
, WHEN YOU ADD NODES AND BRANCHES.)

ON TREE:
B4, B8, and B10;
CELLS B13 AND B14;
B20, B22, B23, B25, AND B26.

NET PROFIT FROM AQ IN CELL B28. USE THE

EXAMPLE 16.11 OF THE EVANS TEXT.
UR FINDINGS USING PICTURES AND NUMBERS.
 Inital Market Development

#NAME? #NAME?

#NAME?
Successful
#NAME?
0 #NAME?

Stop Development

0 #NAME?

#NAME?
not successful

0 #NAME?
 Stage II Process development cost
#NAME?
#NAME? #NAME?

#NAME?
Successful
#NAME?
0 #NAME?
 Stop Developement

0 #NAME?

#NAME?
Stop Development

0 #NAME?
 #NAME?
Board Approval
#NAME?
0 #NAME?

Stage II Market Development

#NAME? #NAME?

#NAME?
Stop development

0 #NAME?

Not successful

0 #NAME?
 #NAME?
Product succeds
#NAME?
Stage III Final Development Cost 0 #NAME?

#NAME? #NAME? #NAME?

Product fails
#NAME?
0 #NAME?

Stop Development
#NAME?
0 #NAME?

#NAME?

#NAME?
#NAME?

#NAME?

#NAME?

#NAME?