CRM Co is a manufacturer of product A and is planning to launch a new version...
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CRM Co is a manufacturer of product A and is planning to launch a new version of A made with a much more superior raw material. The company has commissioned market research to establish possible demand for the upgraded product A and the following information has been obtained. If the price is set at $350, demand is expected to be 950 units. At $560, 800 units and at $670, only 400 units will be demanded. Variable costs are estimated at either $180, $200, or $240. A decision needs to be made on what price to charge. Required: (a) Construct a pay-off table showing the nine possible outcomes for the expected contribution. (9 marks) (b) Indicate the decision that would be made using the following decision criteria: (1) maximax. (ii) maximin (ii) minimax regret. (10 marks) (c) Describe three risk profiles that may be exhibited by a decision maker and indicate which decision criteria would have been used in their decision-making process. (6 marks) CRM Co is a manufacturer of product A and is planning to launch a new version of A made with a much more superior raw material. The company has commissioned market research to establish possible demand for the upgraded product A and the following information has been obtained. If the price is set at $350, demand is expected to be 950 units. At $560, 800 units and at $670, only 400 units will be demanded. Variable costs are estimated at either $180, $200, or $240. A decision needs to be made on what price to charge. Required: (a) Construct a pay-off table showing the nine possible outcomes for the expected contribution. (9 marks) (b) Indicate the decision that would be made using the following decision criteria: (1) maximax. (ii) maximin (ii) minimax regret. (10 marks) (c) Describe three risk profiles that may be exhibited by a decision maker and indicate which decision criteria would have been used in their decision-making process. (6 marks)
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Answer rating: 100% (QA)
Payoff Table statement shoveing enpated contribution Prices 350 560 670 v cost 4 180 200 240 180 200 ... View the full answer
Related Book For
Financial Theory and Corporate Policy
ISBN: 978-0321127211
4th edition
Authors: Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri
Posted Date:
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