Novelty Ltd. manufactures mugs with university crests. The manager of Novelty, Mr. Walsh is considering branching...

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Novelty Ltd. manufactures mugs with university crests. The manager of Novelty, Mr. Walsh is considering branching into a new line featuring the crests of football teams. The success or otherwise arising from the launch of the new modified product (called the Footy model) will depend on the performance of the national football team. Mr. Walsh has a two year planning period. The development costs are estimated at €150. In years 1 and 2, profits will depend on the expected performance of the national football team. Mr. Walsh can foresee three possible levels of performance in years 1 and 2: a slump, a normal level of performance and high level of performance. The expected profits and the probabilities associated with these performance levels for years 1 and 2 are as follows: National Profits Year 1 Probability Probability Team Performance Slump 300 20% 900 Normal 350 65% 1,200 High 500 15% 3,000 Novelty Ltd. use an opportunity discount rate of 4 per cent. Profits Year 2 (a) Construct the decision tree for the decision to launch the new product 20% 65% 15% (10 marks) Novelty Ltd. manufactures mugs with university crests. The manager of Novelty, Mr. Walsh is considering branching into a new line featuring the crests of football teams. The success or otherwise arising from the launch of the new modified product (called the Footy model) will depend on the performance of the national football team. Mr. Walsh has a two year planning period. The development costs are estimated at €150. In years 1 and 2, profits will depend on the expected performance of the national football team. Mr. Walsh can foresee three possible levels of performance in years 1 and 2: a slump, a normal level of performance and high level of performance. The expected profits and the probabilities associated with these performance levels for years 1 and 2 are as follows: National Profits Year 1 Probability Probability Team Performance Slump 300 20% 900 Normal 350 65% 1,200 High 500 15% 3,000 Novelty Ltd. use an opportunity discount rate of 4 per cent. Profits Year 2 (a) Construct the decision tree for the decision to launch the new product 20% 65% 15% (10 marks) Novelty Ltd. manufactures mugs with university crests. The manager of Novelty, Mr. Walsh is considering branching into a new line featuring the crests of football teams. The success or otherwise arising from the launch of the new modified product (called the Footy model) will depend on the performance of the national football team. Mr. Walsh has a two year planning period. The development costs are estimated at €150. In years 1 and 2, profits will depend on the expected performance of the national football team. Mr. Walsh can foresee three possible levels of performance in years 1 and 2: a slump, a normal level of performance and high level of performance. The expected profits and the probabilities associated with these performance levels for years 1 and 2 are as follows: National Profits Year 1 Probability Probability Team Performance Slump 300 20% 900 Normal 350 65% 1,200 High 500 15% 3,000 Novelty Ltd. use an opportunity discount rate of 4 per cent. Profits Year 2 (a) Construct the decision tree for the decision to launch the new product 20% 65% 15% (10 marks) Novelty Ltd. manufactures mugs with university crests. The manager of Novelty, Mr. Walsh is considering branching into a new line featuring the crests of football teams. The success or otherwise arising from the launch of the new modified product (called the Footy model) will depend on the performance of the national football team. Mr. Walsh has a two year planning period. The development costs are estimated at €150. In years 1 and 2, profits will depend on the expected performance of the national football team. Mr. Walsh can foresee three possible levels of performance in years 1 and 2: a slump, a normal level of performance and high level of performance. The expected profits and the probabilities associated with these performance levels for years 1 and 2 are as follows: National Profits Year 1 Probability Probability Team Performance Slump 300 20% 900 Normal 350 65% 1,200 High 500 15% 3,000 Novelty Ltd. use an opportunity discount rate of 4 per cent. Profits Year 2 (a) Construct the decision tree for the decision to launch the new product 20% 65% 15% (10 marks)

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