PART B

PARTB 1207 Sparding Lid la contemplating the manufacture of pool equipment and muut molde whether to build a large or a small plent There is a 0.8 probability that the demand for the equipment will be strong and a 04 probability that the demand will be weak. If demand is strong and a large plant le built, a profit of R10 million will result. However I demand is waak but the plant is large, profits will amount to R1 million. If Sparkling Lid builds a small plant and demand is weak, profits of R4million will be made. If demand is strong and Sparkling Lid has a small plant, the likelihood of competition is greater. It is estimated that there is a 75% chance that the company will come up against competition under these circumstances. In such a case, Sparkling Lid could either build another separate small plant in a different area, or expand the existing plant. If Sparkling Lid decides not to invest in further plant, profits of R6 million are expected, regardless of whether there is any competition REGENT BUSINESS SCHOOL (RBS) - JANUARY 2026 6 * ENG 13:25 2020/10/31 e enc home delete ins prt sc ADVANCED DIPLOMA IN FINANCIAL MANAGEMENT-ACADEMIC AMD ASSESSMENT CALENDAR DISTANCE there is competition, however, either form of expansion to expected to yield a 0.7 probability of a profit of R8 million and a 0.3 probability of a profit of no change in the status quo. If there is no competition, building the separate plant would yield a profit of R9 million with a 0.8 probability and a profit of R7 million with a 0.2 probability. Expanding the existing plant is expected to result in a profit of R7.5 million. Required: a) Draw a decision tree for Sparkling Ltd. b) Determine the optimal strategy by means of backward induction (10) (10) 201 QUESTION FOUR A company produces two products, Alpha and Beta, details of which are as follows: here to search Bi e 15 16 18 JOI $ & 3 4 % 5 6 7 8