Answer Happy

In a rising economy with a competitive
product introduced by competitors, cashinflows over the next five
years would be K6 000, K8 000, K7 500, K7 000, K4 000; in a normal
economy with a competitive product introduced by competitors, cash
inflows would be: K6 000, K6 000, K5 000, K5 000, 3 000; in a
rising economy with no competitive product introduced by
competitors cash inflows would be: K9 000, K12 000, K12 000, K12
000, 7 000; in a normal economy with no competitive product
introduced by competitors, cash inflows would be K9 000, K8 500, K8
000, K7 500 , K5 000 over the next five years.
Assuming the manufacturer’s discount
rate is 10%, determine whether it would be worthwhile to
manufacture the new product.
Assuming the state of the economy this
year normal and there is a probability 0.9 that the economy will be
normal next year while the probability of growing is 0.1. However,
if the economy is rising this year, the probability of it rising
next year is 0.4. Assume that in the year the investment is made,
the economy will be normal.
Assess the decision situation using decision tree analysis