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# Global Expansion: Decision Making with Uncertainty

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You're the manager of global opportunities for a U.S. manufacturer, who is considering expanding sales into Europe. Your market research has identified three potential market opportunities: England, France and Germany.

If you enter the English market, you have a .5 chance of big success (selling 100,000 units at a per-unit profit of \$8), a .3 chance of moderate success (selling 60,000 units at a per-unit profit of \$6), and a .2 chance of failure (selling nothing).

If you enter the French market, you have a .4 chance of big success (selling 120,000 units at a per-unit profit of \$9), a .4 chance of moderate success (selling 50,000 units at a per-unit profit of \$6), and a .2 chance of failure (selling nothing).

If you enter the German market, you have a .2 chance of huge success (selling 150,000 units at a per-unit of \$10), a .5 chance of moderate success (selling 70,000 units at a per-unit profit of \$6), and a .3 chance of failure (selling nothing).

a)If you can enter only market, and the cost of entering the market (regardless of which market you select) is \$250,000, should you enter one of the European markets?

b)If so, which one?

c)If you enter, what is your expected profit?

https://brainmass.com/economics/uncertainty/global-expansion-decision-making-with-uncertainty-231637

#### Solution Preview

Please refer attached file for better clarity of tables.

Solution:

Market : England
State Probability Operating Profit Cost of entering market Net Profit Expected Profit
P NP P*NP
High Success 0.50 100000 units at per unit profit of \$8=800000 250000 550000 275000
Moderate Success 0.30 60000 units at per unit profit of \$6=360000 250000 110000 33000
Failure 0.20 Selling Nothing=0 250000 -250000 -50000
...

#### Solution Summary

Solution describes the steps for selecting the european market among the given options. There is uncertainty about success. It also charts and calculates expected profit for each market and state.

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## Analyzing Capital Investments

Visit the website of Johnson Controls Inc. located at http://www.johnsoncontrols.com, and review its 2012 financial forecasts.

According to the forecasts, Johnson Controls will increase capital investments to approximately \$1.7 billion. More than 70% of the company's capital expenditures in 2012 are associated with growth and margin expansion opportunities.

1. Suggest a methodology to supplement the traditional methods for evaluating the capital investments of Johnson Controls int he emerging markets to reduce risk providing a rationals of how risk will be reduced.

2. Assess the potential impact of inflation on planned capital investments in CHina and examine approaches for an accurate evaluation of the investments. SUggest how this knowledge may impact management's decisions.

3. Contrast the modifications you would make in evaluating the projects to increase internal capacity in North America to evaluating expansion projects in the global market and how this information will impact the decisions made related to expansion.

4. Examine the benefits of using sensitivity analysis in evaluating the projects for Johnson Controls and how this approach can provide a competitive advantage for the company.

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