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Essay / Research Paper Abstract
This 10 page paper considers a case provided by the student. The company has two scenarios. With two production lines an offer has been made by a Japanese company to rent one for a fixed price, this is assessed in terms of the risk reduction against the weighted probability of the profit that will be created by that line if it is retained by the company. The second scenario looks at an opportunity of the company to purchase an identical company, and assesses if the purchase is worth the three million asking price. The bibliography cites 8 sources.
Page Count:
10 pages (~225 words per page)
File: TS14_TEstarr1.rtf
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Unformatted sample text from the term paper:
line is variable in reliability, and figures for different performance levels have been produced. Using these figures it is possible to see that if the line is kept at full
operation for the entire year then the profit would be much higher than the profit offered by the Japanese firm. However, if it is in the lower two estimates, which
also appear to be more likely, as these makeup 0.7 probability, then the Japanese offer will be more profitably. Using weighted averages we can take all figures into account we
get the following. Time in operation Profit (a) Probability (b) Weighted contribution (a x b) 80-100% 1,100,000 0.3 330,000 30-79% 250,000 0.5 125,000 0-29% -100,000 0.2 -20,000
Total 435,000 The figures are in the text rather than as an abstract so the student can follow them
as they go along. Looking at this there is only a small difference between leasing the line out and keeping it with only 35,000 difference. However, the level of uncertainty
may not be worth the additional potential, as this may not be realised, as such under this scenario the better option and less risky option may be to take the
Japanese offer. If a different scenario is considered, and for an additional 20,000 that will increase the reliability of the line, this may be an option worth taking. To
consider this we need to look at the total costs and the increased probability. Time in operation Profit (a) Addition costs (b) New profit (c) (a - b)
Probability (d) Weighted contribution (c x d) 80-100% 1,100,000 40,000 1,060,000 0.35 371,000 30-79% 250,000 20,000 230,000 0.55 126,500 0-29% -100,000 10,000 -110,000 0.1 -11,000 Total
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