Question - Expected Monetary Value Analysis

Is this representative of the PMP exam?


You are developing a revolutionary new product for the telecom industry. It is a switching product that provides voice, video and data over the same pipeline, but uses a technology that has never been tried before. The potential return on investment for this product is $5 billion. Your estimated development costs are $150 million. If you go it alone, there is a 65% chance that you will succeed. You also decide to look into developing the product with a partner that has specific experience with this new technology. With a partner, there is an 85% chance that you will succeed, but development costs in this case are $250 million, of which the partner is carrying $50 million. Because you are shouldering 80% development costs, you decide to split the ROI with 80% going to you and 20% going to the partner if the project succeeds. What is the best EMV scenario from your organization’s point of view?


a. Build the solution alone for $3.25 billion in potential return


b. Build with a partner with a $4.25 billion in potential return 


 c. Build with a partner with a $3.37 billion in potential return


d. Build the solution alone for $3.35 billion in potential return

admin's picture

C --- 85% success means $4.25 B, out of that 80% is your share  which is 3.4 B, subtract your 200 million investment to make it 3.37 B


 


 

Correct answer is B - Build with partner at 4.25 billion


 


option a - 65 % probability of 5 billion return is 3.25 billion less cost 0.15 billion 


net return is 3.10 billion 


option b- 85% probabity of 5 billion return is 4.25 billion - your share of return 80 % of 4.25 is 3.4 billion


less 0.2 billion cost - is 3.2 billion. return.


 


Raj

Good question. I have not seen such a long question at least during my PMP test and while perfirming various practice tests. But question is good.


Here key words are "your organisational point of view".


A. Return of 3.25 B against investment of 0.15B. EMV is 3.1B


C. Return of 4.25 B Total. Your return is 3.4 b against investment of 0.2 B. EMV is 3.2 B


EMV is higher for building solution with partner. So answer A and D are wrong. If you build solution with partner you will not get 4.25B. Hence correct answer is C.

 There r such big questions in exam.