Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

ABC Toys Inc. is trying to determine whether to make significant alterations to their best selling product line. ABC has hired a marketing research company

ABC Toys Inc. is trying to determine whether to make significant alterations to their best selling product line. ABC has hired a marketing research company to perform focus group analysis in order to get a better idea of the demand for the changes The marketing analysis is expected to show a 65% positive outlook and 35% negative outlook. Once they have the analysis, ABC may either adapt the existing product line or make no changes. Final payoffs will depend on market demand either high or low. If the market analysis is positive and ABC goes with an adapted product line, high demand is expected with a probability of 0.70 and a payoff of $4M. Low demand (probability of 0.30) would result in a payoff of $2M. However, If no changes are made, high demand is expected with a probability of 0.30 and a payoff of $4.4M. Low demand would result in a payoff of $3.5M. If the market analysis is negative and ABC goes with an adapted product line, high demand is expected with a probability of 0.40 and a payoff of $4M, low demand would give a payoff of $3.5M. If no changes are made, high demand is expected to have a probability of 0.80 with a payoff of $4.4M and low demand would have a payoff of $2.8. Draw a decision tree to illustrate this problem Solve the decision tree and make a recommendation to ABC

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Risk Based Management Led Audit Driven Safety Management Systems

Authors: Ron C. McKinnon

1st Edition

1498767923, 978-1498767927

More Books

Students also viewed these Accounting questions