Question

You’re the manager of global opportunities for a U.S. manufacturer, who is considering expanding sales into Asia. Your market research has identi-
fied the market potential in Malaysia, Philippines, and Singapore as described next:
Success Level Big Mediocre Failure
Malaysia Probability 0.3 0.2 0.5
Units 1,200,000 384,000 0
Philippines Probability 0.4 0.3 0.3
Units 1,400,000 700,000 0
Singapore Probability 0.1 0.7 0.2
Units 500,000 300,000 0
The product sells for $10 and has unit costs of $8. If you can enter only one market, and the cost of entering the market (regardless of which market you select) is $250,000, should you enter one of these markets? If so, which one? If you enter, what is your expected profit?

Answer 1

Answer:

a) Yes.

b) Philippines

c) Expected profit is $1,540,000

Explanation:

a) Data and Calculations:

Market potential in Malaysia, Philippines, and Singapore as described next:

Success Level                Big          Mediocre           Failure    Expected units

Malaysia Probability      0.3              0.2                    0.5

Units                         1,200,000     384,000              0

Expected units           360,000       76,800               0           436,800

Philippines Probability  0.4              0.3                     0.3

Units                         1,400,000    700,000               0

Expected units           560,000    210,000                0          770,000

Singapore Probability   0.1             0.7                       0.2

Units                          500,000   300,000                 0

Expected units            50,000    210,000                 0         260,000

b) Determination of outcomes:

                                          Malaysia          Philippines       Singapore

Expected units                  436,800             770,000          260,000

Contribution per unit         $2                        $2                     $2

Contribution margin       $873,600        $1,540,000        $520,000

Cost of market entrance 250,000            250,000           250,000

Net Income                    $623,600        $1,290,000         $270,000