A company, Spice of Life Ltd, produces award-winning spices in grinders. It has been creative about the combining of spices in the grinders. The products have been selling well in upmarket areas and the company is considering a new product line which reflects a new concept in the use of spices and will require the company to spend R2 million on initial promotion and test marketing at the current date, which is the end of 2021. If the test marketing phase of the project is successful, then the company will set up production in a year’s time, at the end of 2022, in a leased factory building at a cost of R6 million. This will be required to pay for equipment, fixtures, processes, and special storage facilities. There is a 67% chance that the test marketing phase will be successful. The new product line is expected to generate cash flows of R3.4 million per year for 4 years, from 2023 to 2026, when the concept is expected to become dated, and the product line will be deleted. If the test marketing is not successful, then the project will be abandoned. The company’s cost of capital is 12%. The expected residual value of the equipment, fixtures, and facilities in 5 years’ time is expected to be zero. Assume a zero-tax rate.

(a) Set out the decision tree diagram for the project.

(b) Determine whether the company should go ahead with the test marketing of the new product line.n

Create Effective Charts As you create charts, focus on the following criteria: (1) title descriptiveness. (2) focal points, (3) information sufficiency, (4) ease of processing, and, most import- ant, (5) takeaway message. In the following pages, you will find a discussion of each of these criteria. Also, you will find less effective and more effective examples for each major type of chart. Each of the examples is supplemented with explanations about these five criteria. Title Descriptiveness Most readers look first at the chart's title to grasp its mes- sage. Thus, the title should explain the primary point of the chart. However, it must be short enough for the reader to process quickly (generally less than ten words). In some cases you may add a subtitle if the short title is not sufficient. Consider Figure 12.2, which illustrates identical information with a less effective and more effective line chart. In the less effective chart on the left, the chart title is a short and relatively unhelpful phrase, "Staff & Service Ratings." By contrast, the chart title in the more effective chart on the right uses a title and a subtitle. The main title, "Improvement in Staff & Service Ratings," uses the first word to immediately point out the main theme of the chart. The subtitle, in just seven words, accentuates the idea that the improvement was intentional or goal-based ("Raising Our Performance") and that the improvement far exceeded that of primary competitors. Focal Points A chart should draw the reader's attention to the most-critical rela- tionships and ideas. Much like unified paragraphs (Chapter 6), in which all sentences focus on one main idea, each of the chart's focal points should support one main idea. The focal points can be visually generated in many interesting ways-for example, font choices (bold, italics), color, size, and callout boxes. In the more effective line chart in Figure 12.2, a variety of focal points highlight- the improvement in staff and service ratings at the Prestigio. The callout box centered in the chart directs the reader to the point in time when the Prestigio launched its staff and service initiative, allowing the reader to trace the improvement in ratings since that