Question $4[15$ Marks$]$

A division of Malema Sports Ltd $($MSL$)$ manufactures wooden hockey sticks for the lower end of the market. All available market feedback indicates, since the Covid$-19$ lockdown, that this market has been in decline as sport is not a compulsory activity and hockey is not a mainline sport. MSL has therefore embarked on a research project to develop a hockey stick made of composite materials including carbon fibres, fibreglass, and polyvinylchloride foam. Research costs incurred to date amount to R$860000.$ The project has temporarily been put on hold as one of the directors, Mr Wiseman Floyida, has asked whether MSL should not rather negotiate with an international manufacturer to be their African agent.

MSL$$s marketing manager has forecast the following annual sales for a new composite hockey stick, especially if sold at a competitive price:

Sales Volume

Probability

$5000$

$0\mathrm{.}15$

$8000$

$0\mathrm{.}40$

$12000$

$0\mathrm{.}35$

$17000$

$0\mathrm{.}10$

MBA$5903$

OCTOBER$/$NOVEMBER $2022$ EXAMINATION

$6$

Whether the new hockey stick is manufactured or imported and distributed, the machinery and equipment used in the current manufacturing process will not be useable for the new hockey stick.

Required:

$4\mathrm{.}1.$ Calculate the standard deviation of the new composite hockey stocks$$ expected sales and indicate clearly whether this is a high or low risk project. $(7)$

$4\mathrm{.}2.$ Briefly discuss the coefficient of variation as a relative measure of variability of risk and explain why it is a better measure than the standard deviation. $(3)$

$4\mathrm{.}3.$ In measuring Malema Sports Ltd$$s financial performance, recommend and motivate a course of action regarding the expenditure on the new hockey stick. $(2)$

$4\mathrm{.}4.$ Briefly list the issues to be considered in the discontinuance of the existing wooden hockey stick.