As a truly African company employing more than 6 200 people in various business sectors, the Ohlthaver & List (O&L) Group is rooted in, and committed to, Africa and all her people. Today, O&L is Namibia’s largest privately held group of companies, with revenues contributing roughly 4% to GDP. It has business interests in food production, fishing, beverages, farming, retail trade, information technology, property leasing and development, renewable power generation, marine engineering, steel retailing, advertising and the leisure and hospitality industry. Their professionals, most of whom have practical industry experience and advanced degrees, apply highly specialized skills, deep understanding of technical issues, and broad advisory capability to enhance results.

Information concerning the operations of O&L Group is as follows:

• It is company policy to hire all plant and machinery required for the implementation of all orders obtained, rather than to purchase its own plant and machinery.
• O&L Group will enter into an advance hire agreement contract for the coming year at one of the three levels – high, medium, or low, which correspond to the requirements of a high, medium, or low level of orders obtained.
• The level of orders obtained will not be known when the advance hire agreement contract is entered into. A set of probabilities have been estimated by management as to the likelihood of the orders being high, medium, or lower level.
• Where the advance hire agreement entered into is lower than that required for the level of orders obtained, a premium rate must be paid to obtain additional plant and machinery required.
• No refund is obtainable where the advance hire agreement for plant and machinery is at a level in excess of that required to satisfy the site clearance and preparation orders obtained.

A summary of the information relating to the above points is as follows:

			Plant and machinery hire costs
Level of orders	Revenue	Probability	Advance hire	Conversion premium
Low	4 000	30%	1 000
Medium	8 500	45%	1 500
High	15 000	25%	2 300
Low to medium				850
Medium to high				1 300
Low to high				2 150

 Variable costs are 70% of turn over.

Determine the level at which the expected net gain is maximised (answer in N$)

Answer rating: 100% (QA)

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