Tandem Bicycles is noticing a decline in sales due to increased competition from

Question

Tandem Bicycles is noticing a decline in sales due to increased competition from abroad. The CFO sees the following options to respond: 1. Lower price, resulting in a 1.3 M decline in cash flows. If they lower price, there is a 55% chance they will lose no other cash flow to imports and a 45% chance that they will lose another $550,000 in cash flow to imports. Hire a lobbyist to convince the government that there should be tariffs on imported bicycles. This will cost $800,000 and have a 75% chance of working. If it works there will be no cash flow loss to Tandem, but if it doesn't, there will be $2M reduction in cash flow. a. b. What would you re d and why?

Explanation / Answer

Expected loss in option a=1300000+55%*0+45%*550000=1547500

Expected loss in option b=800000+75%*0+25%*2000000=1300000

So option b should be chosen as it is less reduction on cash flow

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.