Decision Tree Diagram – Worksheet 22: Vitamin C Plc (VCP)

by
Topics covered: Decision Tree Diagram
  • Meaning.
  • Advantages and disadvantages.
  • Decision tree diagram.
  • External environment factors
Vitamin C Plc manufacturers orange fruit juice for the mass market. The company uses high tech flow production to produce juice cans. Though there is a growing demand in the domestic market, the senior management has been in discussion to enter overseas market. However, there is no consensus regarding the method of overseas entry. The majority of the senior management team feels penetrate the domestic market and also tap the unexplored domestic market. Some of them felt, the quick way to grow is through franchise the brand, however, a few of them have recommended joint venture with overseas company to tap overseas market.
The finance and marketing team has calculated costs, revenues and probabilities for the above options. The success or failure depends on competition and demand.

 

 


Options

 Probabilities and expected returns ($)
Good demand 30%		 Probabilities and expected returns ($) Medium demand 40% Probabilities and expected returns ($) Low demand
30%
Option 1: Penetrate the domestic market (Cost: $ 2 m) $ 5m $ 3m $ 2m
Option 2: Enter overseas market (a) Franchising the brand (Cost: $ 1 m) (b) Joint venture (Cost: $ 2 m)
$ 4m
$ 3m
$ 2m
$ 3m
$ 1m
$ 2m

Questions:

  1. Using the information given in the table 1, construct a fully labelled decision tree diagram, calculate expected outcome for each option, and recommend VCP the best option based on your calculation. Show all your working. [8 marks]
  2. Identify and explain two benefits of using decision tree diagram as a planning tool for VCP. [4 marks]
  3. Identify and explain two limitations of using decision tree diagram as a planning tool for VCP. [4 marks]

 

Spread the love