ABC company sells product X to the local market. As a result of decline in demand for product X, ABC is planning to launch a new product, product Y. Each unit of product Y will sell for N$10. The company is not sure of the unit cost to produce one unit of product Y. The production manager has estimated that one unit of product Y might cost either N$6 per unit or N$8 per unit. There is a 70% chance that it will cost N$6 per unit. Due to the uncertainty of the demand of product Y during, the sales department has estimated that they can either sell 10 000 units or 15 000 units. There is a 20% chance that 15 000 units will be sold. 

REQUIRED: 

With the aid of a decision tree, advise ABC whether to launch or not launch product Y. Show all the relevant working to support your answer.

Answer rating: 100% (QA)

To make a decision ABC needs to calculate the expected value of launching product Y under each possi... View the full answer