Using Net Benefit to Evaluate Risk Response Alternatives Rocket Motors manufactures sterndrive engines for pleasure craft boats. Rocket's management is concerned about increasing competition in its industry, resulting from a very large international boat motor manufacturer that appears to be seriously considering entering the same customer market served by Rocket. Specifically, management is most worried about the sales revenue it might lose should this international competitor enter Rocket's market. The chart below contains a description of Rocket's top risk, an inherent risk assessment, three risk response alternatives, and a residual risk assessment for each response alternative. Inherent Risk Risk Response Residual Risk Impact (on lost revenues) Impact (on lost revenues) Risk Likelihood Alternatives Likelihood 50% $60,000,000 25% $50,000,000 A large international Yompetitor enters the same market served by Rocket, thereby significantly decreasing Rocket's annual sales revenue. A-Sign long-term sales contracts with its five biggest customers before the competitor enters the market 40% $15,000,000 B-Invest in a new quality program to significantly increase the performance and quality of its engines beyond the level achieved by the new competitor 50% $60,000,000 C-Take no action in response to possible new regulation Finally, Rocket's management accounting team estimates that Rocket would need to spend $10,000,000 in product giveaways on each of its five biggest customers in order to convince them to sign long-term sales contracts with Rocket. Also, the team believes that Rocket would incur $8,500,000 in additional sales staff travel to complete the long-term contracts. Further, the team estimates that the new quality program would cost $15,000,000 in order to attain the higher level of performance quality necessary to set Rocket apart from its potential new competitor. Finally, Rocket forecasts that it would need to spend an additional $5,000,000 on advertising to sufficiently spread the word to customers regarding its significantly improved performance quality. Required: 1. Calculate the net benefit for each of Rocket's three risk response alternatives (A, B, and C) under consideration. Use minus sign to indicate he negative values. If an amount is zero, enter "O". Net benefit for A $ $ Net benefit for B Net benefit for C $ 2. CONCEPTUAL CONNECTION: Which risk response alternative should Rocket select? The risk response alternative with the greatest net benefit is alternative Using Net Benefit to Evaluate Risk Response Alternatives Rocket Motors manufactures sterndrive engines for pleasure craft boats. Rocket's management is concerned about increasing competition in its industry, resulting from a very large international boat motor manufacturer that appears to be seriously considering entering the same customer market served by Rocket. Specifically, management is most worried about the sales revenue it might lose should this international competitor enter Rocket's market. The chart below contains a description of Rocket's top risk, an inherent risk assessment, three risk response alternatives, and a residual risk assessment for each response alternative. Inherent Risk Risk Response Residual Risk Impact (on lost revenues) Impact (on lost revenues) Risk Likelihood Alternatives Likelihood 50% $60,000,000 25% $50,000,000 A large international Yompetitor enters the same market served by Rocket, thereby significantly decreasing Rocket's annual sales revenue. A-Sign long-term sales contracts with its five biggest customers before the competitor enters the market 40% $15,000,000 B-Invest in a new quality program to significantly increase the performance and quality of its engines beyond the level achieved by the new competitor 50% $60,000,000 C-Take no action in response to possible new regulation Finally, Rocket's management accounting team estimates that Rocket would need to spend $10,000,000 in product giveaways on each of its five biggest customers in order to convince them to sign long-term sales contracts with Rocket. Also, the team believes that Rocket would incur $8,500,000 in additional sales staff travel to complete the long-term contracts. Further, the team estimates that the new quality program would cost $15,000,000 in order to attain the higher level of performance quality necessary to set Rocket apart from its potential new competitor. Finally, Rocket forecasts that it would need to spend an additional $5,000,000 on advertising to sufficiently spread the word to customers regarding its significantly improved performance quality. Required: 1. Calculate the net benefit for each of Rocket's three risk response alternatives (A, B, and C) under consideration. Use minus sign to indicate he negative values. If an amount is zero, enter "O". Net benefit for A $ $ Net benefit for B Net benefit for C $ 2. CONCEPTUAL CONNECTION: Which risk response alternative should Rocket select? The risk response alternative with the greatest net benefit is alternative