Futuristic Phone Inc. (FPI) is contemplating whether to acquire the rights to Muewai’s highly anticipated wrappable mobile phone at a cost of $1.5 billion and develop a wrappable phone in-house at a cost of $2 billion, or stay away from the wrappable mobile phone market for now. If FPI decides to acquire the rights to Muewai’s phone; only after purchasing the rights, FPI will figure out whether Muewai’s wrappable phone is ready for a market launch (70% chance) or not ready for a market launch (30% chance). If the Muewai phone is not ready for a market launch, FPI can decide to sell the rights to another company for $0.2 billion, or invest an additional $1 billion to get the phone ready for a market launch. The in-house developed phone is guaranteed to be market-ready once the $2 billion expense mentioned earlier is incurred. After the phone (developed in-house or bought from Muewai) is ready for a market launch, FPI must decide whether to launch the market-ready phone first in North America (at an additional cost of $0.3 billion) or first in Asia (at an additional cost of $0.9 billion). 

If launched in the North American market, there is an 80% chance that the customers will love the phone, resulting in a revenue of $1.1 billion, and a 20% chance that the customers will not like the phone that much, resulting in a revenue of $0.5 billion. In either case, FPI can then decide to keep the phone only in the North American market or launch it across the rest of the world at an additional cost of $1.5 billion. If launched across the rest of the world, there is a 95% chance that the phone will be loved by the customers worldwide if the phone was loved by the North American customers, and a 90% chance that the phone will not be liked that much by the customers worldwide if the phone was not liked that much by the North American customers. If the phone is loved by the customers worldwide, it will result in additional revenue of $5 billion, and if the phone is not liked that much by the customers worldwide, it will result in additional revenue of $1 billion. If launched in the Asian market, there is a 90% chance that the customers will love the phone, resulting in a revenue of $2.5 billion and a 10% chance that the customers will not like the phone that much, resulting in a revenue of $0.3 billion. 

In either case, FPI can then decide to keep the phone only in the Asian market or launch it across the rest of the world at an additional cost of $1 billion. If launched across the rest of the world, there is a 90% chance that the phone will be loved by the customers worldwide if the phone was loved by the Asian customers, and a 95% chance that the phone will not be liked that much by the customers worldwide if the phone was not liked that much by the Asian customers. If the phone is loved by the customers worldwide, it will result in additional revenue of $4.5 billion, and if the phone is not liked that much by the customers worldwide, it will result in additional revenue of $0.7 billion. FPI can also invest $50 million in a worldwide survey of potential customers to determine how likely they are to purchase a wrappable mobile phone. If done, the survey has an 85% chance of predicting that the customers will love the phone (i.e. a favorable prediction). If the survey has a favorable prediction, there is a 97% chance that the North American customers will actually love the phone if the phone is launched initially in North America and a 98% chance that the Asian customers will actually love the phone if the phone is launched initially in Asia. If the survey has an unfavorable prediction, there is a 12% chance that the North American customers will actually love the phone if the phone is launched initially in North America and a 10% chance that the Asian customers will actually love the phone if the phone is launched initially in Asia. 

Assuming that FPI only cares about profit, determine an appropriate strategy using a decision tree. Showcase the strategy on the decision tree, in words, and through a risk profile (a table and a histogram). 

 

Answer rating: 100% (QA)

Futuristic phone Inc FPI acquiring the rights of Muewai Is given throu... View the full answer