mpur Term I Q6. Dollar Department Stores has received an offer from Harris Damon

Question

mpur Term I Q6. Dollar Department Stores has received an offer from Harris Damonds to pnhn Dilar's ne on Grove Street for $80,000. Dollar has determined probability estimates of the wone's i prol $120,000) -0.2 a) Should Dollar sell the store on Grove Street? b) Dollar ean have an economic forecast performed. The forecast costs 51,000, and indicates either G- Good business conditions or B prob(G /$60,000) Should Dollar purchase the forecast? Bad business conditions. Conditional 0.1 ; prob(G / S80,000)-02; prob(ol s 100,000)-0.3; prob(G1s120D00)-0.4. [3+6 9 Marks!

Explanation / Answer

Answer:

a) Dollar should not sell the store on Grove Street. The reason is, there is no reason to sell a growing business. We can say that the business at store on Grove street is growing by the Harris Offer. When Harris offered $80,000 which has a 50% probability for estimate of $60,000 future profitability, it is evident that the future profitability will be more than $80,000/-

b) There is no need for Dollar to purchase the economic forecast. Because from the offer submitted by Harris itself predict that the future profitability is more than $80000/-. The reason is before submitting the offer Harris must have done the economic forecast and based on the result only Harris might concluded on the value of business at $80,000/-

Thanks.

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