Larsson Elevator has formed a joint venture (V) with Master Elevator in order to design and manufacture high-performance passer Num Lock lifts for buildings in Mauritius. The joint venture is called Larsson Master elevator with each party owning 50%. Larsson elevator will design and build the internal parts of passenger lift, the doors and operating panel while Master elevator will supply the electric machine and fit steel work. Larsson Elevator Larsson elevator is a medium sized firm situated at Curepipe and it is known for its quality lift. It is owned by three young University of Mauritius graduates each holding 30% of the shares, with the remaining 10% being given to management to motivate them. The young investors have a large portfolio of business investments in many other companies and accept that some of these investments may fail provided that some of their investments show large gains. However, management team is pessimistic and have concerns about opportunity cost of making a wrong decision. Master Elevator On the other hand, Master elevator which is situated at Flacq, is a large family-owned company working in the highly competitive steel welding sector in Mauritius. The shareholders of Master Elevator see the business as mature and want it to offer a stable, long-term return on capital. However, recently, Master Elevator had to seek emergency refinancing due to its thin profit margins and tough competition, both of which are forecast to continue. As a result, Master Elevator's shareholders and management are concerned for the survival of the business and see Larsson Master Elevator as a way to generate some additional cash flow. Unlike at Larsson Elevator, the management of Master Elevator does not own significant shareholdings in the company and get fixed salaries. Three models of lifts by Larsson Master Elevator Larsson Master Elevator is run by a group of managers made up from each of the two companies. They are currently faced with a decision about the model of the lifts. There are three model choices for passenger lifts depending on the number of passengers they can carry: Design type Number of passengersModel A 18 Model B 12 Model C 6 Details about costs, selling price and market demand The demand for the different models of passenger lifts is uncertain and will depend on the unpredictable external environment. It is believed that there will be orders for either 1,000 or 1,500 or 2,000 units but there is no clear picture yet of which demand level is more likely than the others. The estimated costs and prices for the units are: Type of lift Variable cost per Fixed costs Price per lift lift Rs million Rs million Rs million Model A 10.4 7500 20.8 Model B 4.8 820 9.6 Model C 1.15 360 4.6 Required