Analytical Techniques
Rutgers University
International EMBA Program
Singapore, June 2017

Homework Assignment 2

Note: in this assignment, I have selected a different case than originally listed in the course schedule.

Read the Merck and Company case at the very end of the coursepack, and answer the following

  1. From an expected monetary value (EMV) standpoint, is it advantageous for Merck to accept licensing deal being offered by LAB?  Show your work in the form of a decision tree analysis and state Merck's optimal policy and its EMV.  Please keep in mind that Merck has the option of abandoning the project after phase II trials, depending on their outcome.  What is the EMV of the deal for Merck?  You may either work the problem by hand or use the TreePlan add-in.
  2. Briefly (in a short paragraph) discuss whether you think that Merck should use the EMV criterion to evaluate the licensing deal, or should be more conservative because of the magnitude of the risks involved.  Conversely, in its negotiations with Merck, do you think LAB ought to use EMV to evaluate the attractiveness of any counteroffers made by Merck, or should it be more conservative?