Barling Manufacturing is delivering to a very competitive market and now John is up to a very challenging task. As everyone knows the weather is poses a high risk for farmers. John was asked to meet with Mr Johnson and Mrs Brown in the board room. According to market research there is an opening in market for drain pumps. This as the weather is getting more and more fierce. According the British Metrological Institution the probability for a good or normal summer 2024 is 30% and a bad one 40%.

For 2025 the institution only delivers probabilities for good and bad weather. The probability for good weather is 60% for 2025. The investment needed to start to produce drain pumps is £70 000 and considering the risk involved the required rate is set at BRRR + RP-2.

For 2024 the return is £40 000 for good weather, £50 000 for normal and £70 000 for bad. 2025 is expected at £45 000 for bad weather and £15 000 for god. The reason for lower yield in 2025 is due to a conservative estimate as competition is expected to ramp up. As John really needs to focus on a more sophisticated matter she gives this task to you.

Make an assessment of this and give John a recommendation for how to go ahead.