Question

The Super Cola Company must decide whether or not to introduce a new diet soft drink. Management feels that if it does introduce the diet sods it will yield a profit of $1 million if sales are around 100 million, a profit of $225,000 if sales are around 50 million, or it will lose $2 million if sales are only around 1 million bottles. If Super Cola does not market the new diet soda, it will suffer a loss of $400,000

a. Construct a Payoff Table for this problem.

b., Construct an Opportunity Loss Table for this problem

c. An internal marketing research study has found P (100 million in sales) = 0.2; P (50 million in sales) = 0.45; P (1 million in sales) = 0.30

Should Super Cola introduce the new diet soda based on expected payoff (profits)?

d. Based on Expected Opportunity Losses (EOL), which strategy is best for Super Cola? Create a Table of Opportunity Losses to answer the question.

e.What is the EVPI (expected Value of Perfect Information)?

f. A Consulting Firm can perform a more thorough study.

Their Revised Probabilities are listed below

What is the Expected Value of Sample Information based off the data from the Revised Probabilities (on Excel)?

g. If the Consulting Firm charges $8,000 for their study, should Management do the study? Why or Why not?

Revised Probabilities from Study (Conditional Probabilities)

State	Conditional Probabilities
S1	0.45
S2	0.25
S3	0.30

Answer 1

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