Q3. ABC India, a company in FMCG sector is planning to launch a new product that can be initially introduced in Western India or in the whole country. If the product is introduced only in Western India, the investment outlay will be Rs. 12 million. After two years, company can evaluate the project to determine whether it should cover the whole country. For such an expansion it will have to incur an additional investment of Rs. 10 million. To introduce the product in the whole country right in the beginning would involve an outlay of Rs. 20 million. The product, in any case, will have a life of 5 years, after which the plant will have zero net value. If the product is introduced only in Western India, demand would be high or low with the probabilities of 0.8 and 0.2, respectively and annual cash inflow of Rs. 4 million and Rs. 2.5 million, respectively. If the product is introduced in the whole country, right at the beginning the demand would be high or low with the probabilities of 0.6 and 0.4, respectively and annual cash inflows of Rs. 8 million and Rs. 5 million, respectively. Based on the observed demand in Western India, if the product is introduced in the entire country the following probabilities would exist for high and low demand on an all India basis. (10 marks) Western India Whole Country Demand High Demand Low Demand High Demand 0.9 0.4 Low Demand 0.1 0.6 The hurdle rate applicable to this project is 12 per cent. Advise ABC India on the investment policy it should follow. Support your advice with appropriate reasoning