Discuss CIMA CIMAPRO19-P01-1 Exam Topic 4 Question 111

A company is considering whether to develop an overseas market for its products. The cost of developing the new market is estimated to be $250,000. There is a 70% probability that the development of the new market will succeed and a 30% probability that the development of the new market will fail and no further expenditure will be incurred.

If the market development is successful, the profit from the new market will depend on prevailing exchange rates. There is a 50% chance that exchange rates will be in line with expectations and a profit of $500,000 will be made. There is a 20% chance that exchange rates will be favorable and a profit of $630,000 will be made and a 30% chance that exchange rates will be adverse and a profit of $100,000 will be made.

The profit figures stated are before taking account of the development costs of $250,000.

Use a decision tree to decidewhether the company should develop an overseas market for its products.

Select one correct answer.

AThere is 70% chance that the project will fail.

BThere is 65% chance that the project will fail.

CThe overseas market should not be developed.

DThe overseas market should be developed.

EThere is a chance to make $506 000 profit.

FThere may be a loss of $110 000.

Suggested Answer: D

References:

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14 comments · newest first

Santos 10 months ago

There's a potential loss of $110,000 if things go south.

Scarlet 10 months ago

Wait, how can we be sure about those profit figures?

Johnna 10 months ago

The project has a 70% chance of success.

Vincenza 11 months ago

$506,000 profit sounds too good to be true!

Shawnta 11 months ago

I think developing the market is a smart move!

Matthew 11 months ago

I feel like there’s a chance of loss here, especially with the adverse exchange rates, but I can't recall the exact figures we calculated.

Tricia 11 months ago

I practiced a similar question where we had to weigh the costs against potential profits, so I think developing the market could be a good idea.

Jarvis 12 months ago

I think the probabilities add up to 100%, but I might be mixing up the success and failure rates.

Brittni 12 months ago

I remember we discussed decision trees in class, but I'm not sure how to calculate the expected profits accurately.

Edelmira 12 months ago

I'm not sure about this one. There are a lot of moving parts, and I don't want to rush into an answer without being sure I've considered all the angles. I'll need to work through this step-by-step.

Haydee 1 year ago

This seems straightforward enough. The 70% chance of success and potential for higher profits outweigh the 30% chance of failure, so I'm confident the company should develop the overseas market.

Nicholle 1 year ago

Okay, I think I've got a handle on this. The key is to calculate the expected value of developing the overseas market and compare it to the expected value of not developing it. That should point me to the right decision.

Chana 1 year ago

I'm a bit confused by all the different probabilities and profit scenarios. I'll need to take some time to really understand the details before I can decide on the right answer.

Grover 1 year ago

Hmm, this looks like a classic decision tree problem. I'll need to carefully map out the probabilities and potential outcomes to determine the best course of action.

CIMAPRO19-P01-1 Exam - Topic 4 Question 111 Discussion