From the four scenarios listed, which scenario do you believe adds the mostexpectedtotal profits with the least amount of operational risk over a 5-year period and why?

Scenario: "Product Launch"

You are the lead project manager for two product launches. Product "Redesign" is a redesigned product of your company's bestselling product.Product "New" is a completely new product in a new product category.

• The initial plan is to price product "Redesign" at $425 per unit and product "New" at $600 per unit.
• Over the next 5 years the company could sell anywhere from 235,000 to 550,000of product "Redesign" and 125,000 to 425,000 of product "New".We believe that there is a 50% chance that demand will be at the low end and a 50% chance that demand could be at the high end.
• To achieve these projected sales numbers, for each product, the company will need to spend $8,000,000 dollars in marketing over 5 years, plus compensate the company's direct sales staff with a 5% sales commission on the purchase price of the product for each unit that is sold.
• For product "Redesign", we projecting that the company will need to invest $30,000,000 for manufacturing equipment which will allow the company to make 500,000 units of this product over 5 years.
• For product "New", we projecting that the company will need to invest $36,000,000 for manufacturing equipment which will give the company the capacity to make 350,000 units of this product over 5 years.
• As seen inExhibit A below, a thorough list of the raw material and labor cost needed to manufacture each product as well as the manufacturing overhead.
• The company will not have enough manufacturing capacity if demand for both products is on the high-end of the sales projections.
• We feel that with an additional investment of $10,000,000 million dollars for product "Redesign", operations can increase capacity to 750,000 units over 5 years, and for an additional investment of $5,000,000 million dollars for product "New", operations can increase capacity to 475,000 units over 5 years.
• However, based on your initial breakeven analysis this additional investment will not pay for itself unless demand for both products significantly increases.
• The V.P. of marketing believes that if the price of product "Redesign" is lowered to $370 per unit, forecasted sales will be anywhere from 375,000 to 800,000 units over 5 years, and if the price for product "New" is lowered to $550 per unit forecasted sales will be anywhere from 185,000 to 457,000 units over 5 years.

Your analysis will include looking at the expected operating profit and risk under four scenarios:

1. Scenario 1:Price product "Redesign" at $425 per unit and keep capacity at 500,000 units
2. Scenario 2:Lower the price of product "Redesign" to $370 per unit and expand capacity to 750,000 units.
3. Scenario 3:Price product "New" at $600 per units and keep capacity at 350,000 units
4. Scenario 4:Lower the price of product "New" to $550 per units and expand capacity to 475,000 units

Exhibit A: Operational Costs Product Product Redesign New Initial capital equipment 30,000,000 36,000,000 Incremental capital equipment to expand 10,000,000 5,000,000 Material cost per unit $ 148-75 $ 24000 Direct Product Labor cost per hour $ 2?.50 25.00 Direct Product Labor hours to make one 3 2 Management Salary Per Year $ 100,000 $ 100,000 Supervisor Salary.r Per Year $ ?5,000 $ ?5,000 Number of Managers 3 3 Number of Supervisors 10 10