Simulation Topic: Risk & Expected Return

[Capital Assessment/Capital Asset Pricing Model]

Felix and Andrew own top shoe companies, making them competitors. They both want to put the other out of business and be the top shoe company globally. Both companies need to find a product [shoe] that will appeal to all audiences so that they can beat out the other. They think they have when they meet Michael. Michael says that he has a new shoe design with a range of colors and styles, as well as a comfortable material, that will appeal to all audiences. Michael promises this and states that consumers will purchase the product and profits will increase to the point theyd run their competitor out of business. However, Michael has never been patented for his prior designs or been hired by companies for his previous ideas. Both companies field-tested the product and saw positive results across the board, so both reached out to Michael to negotiate. The main term being they pay Michael for his idea and the rights to it so they can alter it with their professional experience. Michael told both companies no and said he wanted to be in on production as well as hold weight within the stock portfolio for the product. This poses a lot of risk to the companies if they agree to his terms, but both are considering it. Felix hears from a source that Andrew is going to concede to Michael's demands and decides to jump on the offer before he can. Is this a smart decision Felix is making? Why or why not? Can Andrew recover if the product is successful? If so how? If not, why? Overall, why would Felix or Andrew make this risky decision, and does it benefit them? Is there another way either company can Lord over the other without taking this risk and if so how? Develop a simulation model/presentation explaining the concepts that lead you to your answers along with a [business] model suggesting a good idea with low risk to your [preferred] company of choice