To calculate the Expected Value (EV) for each option (Sell Company, Form Joint Venture, and Sell Software on own), we'll use the formula for Expected Value:
\[ EV = (P(Success) \times Payoff(Success)) + (P(Moderate Success) \times Payoff(Moderate Success)) + (P(Failure) \times Payoff(Failure)) \]
Where:
- \(P\) is the probability of each outcome.
- Payoff is the corresponding payoff for that outcome.
1. Sell Company
- Success: 106
- Moderate Success: 106
- Failure: 106
\[ EV_{\text{Sell Company}} = (0.3 \times 106) + (0.3 \times 106) + (0.4 \times 106) \]
Calculating each term:
- Success: \(0.3 \times 106 = 31.8\)
- Moderate Success: \(0.3 \times 106 = 31.8\)
- Failure: \(0.4 \times 106 = 42.4\)
Adding these together: \[ EV_{\text{Sell Company}} = 31.8 + 31.8 + 42.4 = 105.99 \]
2. Form Joint Venture
- Success: 210
- Moderate Success: 120
- Failure: 74
\[ EV_{\text{Joint Venture}} = (0.3 \times 210) + (0.3 \times 120) + (0.4 \times 74) \]
Calculating each term:
- Success: \(0.3 \times 210 = 63\)
- Moderate Success: \(0.3 \times 120 = 36\)
- Failure: \(0.4 \times 74 = 29.6\)
Adding these together: \[ EV_{\text{Joint Venture}} = 63 + 36 + 29.6 = 128.6 \]
3. Sell Software on own
- Success: 420
- Moderate Success: 185
- Failure: 100
\[ EV_{\text{Sell Software}} = (0.3 \times 420) + (0.3 \times 185) + (0.4 \times 100) \]
Calculating each term:
- Success: \(0.3 \times 420 = 126\)
- Moderate Success: \(0.3 \times 185 = 55.5\)
- Failure: \(0.4 \times 100 = 40\)
Adding these together: \[ EV_{\text{Sell Software}} = 126 + 55.5 + 40 = 221.5 \]
Summary of Expected Values
- EV for Sell Company: 105.99
- EV for Form Joint Venture: 128.6
- EV for Sell Software on own: 221.5
Thus, the expected values for each option are as follows:
- Sell Company: 105.99
- Form Joint Venture: 128.6
- Sell Software on own: 221.5
Recommendation: Based on the Expected Values, the best option is to Sell Software on own, as it has the highest EV of 221.5.