Business, 26.03.2021 01:20 payloo

You have developed a new compression algorithm that could revolutionize the internet. You can auction it off to existing companies, or start your own company. If you auction your algorithm, your analysis suggests the selling price will be distributed uniformly between $5 million and $15 million. If you start your own company, it will cost you $10 million. There is a 40% chance your company will be immediately successful and sell for $30 million (gross earnings), and a 60% chance you will need more time. If you need more time, you have to decide whether to keep going or sell your company. It will cost you another $5 million to keep going. Or, you could sell your company, with a 15% chance of a gross sale price of $6 million, a 25% chance of a gross sale price of $12 million, and 60% chance of a gross sale price of $16 million. If you decide to keep going, there is a 65% chance you will be successful and sell your company for $30 million (gross earnings), and a 35% chance your company fails and your gross earnings are $0. Assume you are an expected value maximizer. What is the expected value of your optimal decision

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