QUESTION ONE Ted makes sports equipment. He is currently considering bidding for a job to manufacture a 'Supergym' for one of the country's leading provincial rugby teams, the 'Stallions'. [40] There are two proposals. Proposal 1 requires an 'auto' gym and Proposal 2 requires a 'manual' gym. The 'auto' and 'manual' gym are identical, exept the 'auto' gym has an automatic pulley system. The Stallions have stipulated that each possible supplier may only place one bid; either for the 'auto' or the 'manual' gym. However, Ted is concerned about the Supergym order. He says to you, "my estimated prices are a lot lower than I would normally charge because I expect there to be a lot of competition to build the gym. I need you to evaluate the proposals and advise me accordingly. Would I make a profit? The prestige of getting this order would do my business a lot of good, but on the negative side, t 2 galvanized metal is quite difficult to work with. I don't think I will have any margins of error". Information relevant to the Supergym proposal is as follows: Possible Prices: Ted has estimated the following possible prices that the Stallions would be prepared to pay for each gym type Gym Type Auto Price Probability Price High 60% R270 000 Low 40% R230 000 Manual High 30% R220 000 Low 70% R200 000 Imported weights: Each gym requires specially designed weights, imported from Britain. The cost of these weights (which would be identical for whichever gym is chosen) is 6 000. Ted has spoken to the foreign exchange department at his local bank and they have indicated to him the possible fluctuations in the Rand/ exchange rate which might occur leading up to the time of acquisition of the weights: State of Rand against Weakens Stable Strengthens Probability Rate of Exchange R11.00 1 30% 50% R10.00 1 20% R 9.50 1 The current exchange rate is R10.00 - 1. 1