QUESTION 3 Samoto Limited (SL) relies on an external supplier for production capacity. In order to gain access to a certain level of production capacity, SL will have to commit to an annual contract before the start of the operating period. The contract will stipulate the production capacity entitlement of SL. SL has a choice of three contracts: Contract Mega, Contract Upper, and Contract Soso. Regardless of the choice of contract, the company will be subject to three states of nature: high demand, medium demand and low demand. The net profits generated by each of the contracts under the three states of nature are as follows: Net profit (000) High demand Medium demand Low demand Contract Mega 20,000 15,500 11,000 Contract Upper 17,000 16,000 12,000 Contract Soso 16,500 15,000 13,000 The probabilities of the states of nature are as follows: High demand Medium demand Low demand Probability 25% 45% 30% Required: a) Determine the choice of contract using the regret criterion. (5 marks) b) A consultant claims that she will be able to predict the level of demand. However, her prediction will only be 70% accurate. Inaccurate predictions will be equally distributed between the remaining two levels of demand. Required: Determine the number of days matrix that reflects the imperfect information. Your answer should be rounded to 2 decimal places. (7 marks) c) Using the number of days matrix in part b), determine the probability of the following: (1) The consultant predicting a medium demand (1) Demand will be high when the consultant predicts a low demand (ii) Demand will be medium when the consultant predicts a medium demand (iv) Demand will be low when the consultant predicts a high demand (4 marks) d) Explain how the balanced Scorecard can be used to support strategic investment appraisal. (6 marks) 5 BEA2017 Turn over Evaluate the usefulness of the balanced Scorecard in supporting strategic investment appraisal. (8 marks)