Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Applying simulation to decision problems:
Compare the risk analysis results for the six designs and discuss how a decision could be made between them
Transcribed Image Text:Trentware plc is a medium-sized pottery manufacturer which is based in the English Potteries. The
company has fared badly over the last 10 years, mainly as a result of Japanese competition, and
recently this has led to major changes at the senior management level. The new managing director is
determined to increase the company's market share, and you are a member of the ambitious new
management team which intends to extend the company's range of tableware designs. Trentware's
immediate objective is to launch a new high-quality product for the Christmas market in 18 months'
time. Over 30 possible designs have been subjected to both technical analysis (to assess their
production implications) and extensive market research. As a result of this analysis, the number of
potential designs has now been winnowed down to six. Some of these designs are thought to offer
more risk than others because of changes in fashion, similarities to competing products and possible
production problems. Now one design has to be selected from the six remaining. Risk analysis has
been applied to each of these six designs and some of the main results are given below:
Design
Mean NPV ($000)
Standard deviation of NPV ($000)
1
50
3
2
21
2
3
20
29
4
46
8
5
-49
31
6
60
30
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