You’re the manager of global opportunities for a U.S. manufacturer, who is consi

Question

You’re the manager of global opportunities for a
U.S. manufacturer, who is considering expanding
sales into Asia. Your market research has identi-
fied the market potential in Malaysia, Philippines,
and Singapore as described next:

                                 Success Level
                            Big     Mediocre Failure
Malaysia
Probability              0.3     0.3        0.4
Units              1,200,000 600,000 0

Philippines
Probability 0.3                0.5      0.2
Units         1,000,000 320,000    0

Singapore
Probability           0.7 0.2           0.1
Units            700,000 400,000     0

The product sells for $10 and has unit costs
of $8. If you can enter only one market, and the
cost of entering the market (regardless of which
market you select) is $250,000, should you enter
one of these markets? If so, which one? If you
enter, what is your expected profit? You’re the manager of global opportunities for a
U.S. manufacturer, who is considering expanding
sales into Asia. Your market research has identi-
fied the market potential in Malaysia, Philippines,
and Singapore as described next:

                                 Success Level
                            Big     Mediocre Failure
Malaysia
Probability              0.3     0.3        0.4
Units              1,200,000 600,000 0

Philippines
Probability 0.3                0.5      0.2
Units         1,000,000 320,000    0

Singapore
Probability           0.7 0.2           0.1
Units            700,000 400,000     0

The product sells for $10 and has unit costs
of $8. If you can enter only one market, and the
cost of entering the market (regardless of which
market you select) is $250,000, should you enter
one of these markets? If so, which one? If you
enter, what is your expected profit?

Explanation / Answer

Contribution is $2 per unit

Expected Profits for Malaysia

(((1200000 x 2) - 250000) x 0.3) + (((600000 x 2) - 250000) x 0.3) - (250000 x 0.4) = 645000 + 285000 - 100000 = $830000

Expected Profits for Philippines

(((1000000 x 2) - 250000) x 0.3) + (((320000 x 2) - 250000) x 0.5) - (250000 x 0.2) = 525000 + 195000 - 50000 = $670000

Expected Profits for Singapore

(((700000 x 2) - 250000) x 0.7) + (((400000 x 2) - 250000) x 0.2) - (250000 x 0.1) = 805000 + 110000 - 25000 = $890000

The firm should enter Singapore as it has the highest expected profits.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.