Imagine a company has recently developed Chewsy, a new sugar-free gum containing fluoride using a novel nanotechnology. Not only does it taste good, it is good for your teeth. You are faced with the decision to introduce Chewsy to the market.

The total sales of chewing gum are expected to be about $200 million over the next 10 years.

Your marketing personnel believe with their best efforts and an initial marketing expenditure of $4 million, Chewsy could capture from 2 percent to 10 percent of the chewing gum market. They have given you the following probabilities for market share:

Market Share Probabilities

High (10%) 0.30

Medium (6%) 0.50

Low (2%) 0.20

Your financial advisors point out that the profit margin on Chewsy is quite uncertain at this time because of unusual manufacturing requirements. Excluding the one-time marketing expenditure, they say there is a 40 percent chance that operating profit will be 25 percent of sales revenue and a 60 percent chance it will be 50 percent of sales revenue.

Directions:

Consider the information in the scenario above to complete the following tasks on their corresponding spreadsheet tabs below. Make sure to use the nomenclature and formatting conventions found in your textbook for all diagrams.

Draw an influence diagram that correctly represents the question scenario.

Draw a Schematic Tree that illustrates the chronological order of decisions and uncertainties. Make sure to connect all branches.

Draw the Decision Tree and add probabilities, outcomes, and values to complete it.

Rollback. Use the rollback procedure to compute expected monetary value of the tree. Recommend which decision the company should make based on this information and the rationale for that decision.