1. Safaricom Ltd. intends to launch a new mobile handset into the market. The management of the company are uncertain of some variables, namely, the selling price and annual sales volume of the mobile handset. The following information relates to the possible values of the above variables and their associated probabilities.

Selling price/unit (Sh.)	Probability	Annual Sales Volume (units)	Probability
6,000	0.2	1,000,000	0.3
6,500	0.5	2,000,000	0.4
7,000	0.3	3,000,000	0.3

Additional information:

• Variable cost per unit is expected to remain constant at Sh.5, 500 over the period under consideration.
• Fixed costs per annum amount to Sh.900,000,000

Required:

1. Simulate the companys profit for a period of 5 years using the following random numbers: 1, 4, 3, 0, 8, 2, 7, 9, 4, 5
2. The average annual profit of the company. [10 marks]

Note:

Profit = [(Selling price/unit Variable cost/unit) number of unit sold] Fixed cost.

2. Cement co is a company specializing in the manufacture of cement, a product used in the building industry. The company has found that when weather conditions are good, the demand for cement increases since more building work is able to take place. Cement Co is now trying to work out the level of cement production for the coming year in order to maximize profits. The company has received the following estimates about the probable weather conditions and corresponding demand levels for the coming year

Weather	Probability	Demand(bags)
Good	25%	350,000
Average	45%	280,000
Poor	30%	200,000

Each bag of cement sells for $9 and costs $4 to make. If cement is unsolved at the end of the year, it has to be disposed of at a cost of $0.05 per bag. Cement Co has decided to produce at one of the three levels of production to match forecast demand. It now has to decide which level of cement production to select.

Required

1. Construct a pay-off table to show all the possible outcomes (2marks)
2. Determine the level of cement production the company should choose, based on the decision rule of:

1. Maximin (3marks)
2. Minimax (3marks)
3. Maximax (2marks)