Question 1.

Coal Town ltd are a small book publishing firm based in Salford. The company is considering launching a new imprint Ghost Town specialising in ghost and horror stories. The outcome of the project depends on the marketing campaign the firm is planning. There is a 65% probability that the campaign is effective, and a 35% probability that it will not be effective. An effective marketing campaign will generate a cash flow of 500,000, whilst a failed marketing campaign will result in a negative cash flow of (100,000).

A firm called Delph ltd. claim they can predict the success or failure of the marketing campaign. Delph ltd for the forecast require a fee of 50,000.

When the Market Right ltd forecast says it is an effective marketing campaign, they are correct 95% of the time.

A forecast of a failing marketing campaign is correct 90% of the time.

Delph have some data from previous firm involvement (anonymised for confidentiality) below. The same Delph predication variables apply: success 95% and failure 90%

	Firm A	Firm B	Firm C	Firm D	Firm E	Firm F	Firm G
Marketing fee	45,000	60,000	95,000	50,000	75,000	55,000	80,000
Cash flow high low	350,000 (50,000)	750,000 (125,000)	965,000 (175,000)	575,000 (110,000)	805,000 (140,000)	620,000 (90,000)	795,000 (130,000)
Percentage success failure	60% 40%	70% 30%	55% 45%	65% 35%	50% 50%	80% 20%	75% 25%

REQUIRED:

a) Should the business pay the fee to Delph ltd for a marketing forecast? Show all workings and cell functions using excel.

[10 Marks]

b) Use Excel and create a spreadsheet to calculate the benefits/costs of Delphs advice to firms using the data in the table. Use and show formula in working out the results. Comment on the data and spreadsheet.

[16 marks]

c) Discuss and evaluate 3 methods of dealing with risk and uncertainty.

[9 marks]

TOTAL 35 MARKS