Question

The Super Cola Company must decide whether or not to introduce a new diet soft drink. Managment feels that if it does introduce the diet soda, 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 loose $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 oppurtunity loss table for this problem

c. An internal marketing research study has found P (100 million in sales) =.25; P(50 million in sales) =.45; P(1 million in sales) =.30.

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

d. Based on the 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 as follows.

STATE	CONDITIONAL PROPERTY
S1	.45
S2	.25
S3	.30

Find the expected value of information on Excel

g. If the consulting firm charges $8000 for their study, should management do the study? Why or why not?

*PLEASE BE COMPLETED ON EXCEL*

Answer 1