Refer to Appendix 2. Draw a decision tree using this information.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. [2] (a)(i) Drawing nodes and decision points
2. [2] (a)(i) Correct figures entered
3. [1] (a)(i) Some attempt at nodes/decision points
4. [1] (a)(i) Some attempt at figures
5. [0] (a)(ii) Option A Expected value at decision node = 50 × .4 + 35 × .6 = $41m
6. [1] (a)(ii) Take off capital cost (−32) = $9m
7. [1] (a)(ii) Use of probabilities or some attempt
8. [0] (a)(ii) Option B Expected value at decision node = 90 × .3 + 40 x .7 = $55m
9. [1] (a)(ii) Take off capital cost (-45) = $10m
10. [1] (a)(ii) Use of probabilities or some attempt
11. (b) Use of calculations: greatest EMV (Option A B2C = 9, Option B C2C = 10), – highest value chosen as greatest return/net profit. Is a difference of 1 significant?
12. (b) Decision tree figures based on forecasts of sales and costs – how accurate are these? What might they be based on?
13. (b) Three year time scale – what happens after that?
14. (b) Option A offers highest profit but also greatest risk as competitive market and price sensitive consumers.
15. (b) Option A market expanding rapidly but low margins mean a misforecast could be very costly
16. (b) Option B (lowest forecast) also expanding and offers advantage of entering near start of rapid growth and gaining brand loyalty but has higher costs and is relatively more unknown
17. (b) Use of Ansoff's matrix – Option A and B could be market development
18. (b) Does KKS have the money for the additional operating costs for Option A and B?
19. (b) Evaluation by justified recommendation based on consideration of the above or other relevant points.