You are deciding between continuing to buy preassembled bikes and manufacturing your bikes. There are a lot of changes happening in the economy and you believe there is a 20% chance of a strong outlook and 50% flat and 30% weak over the next 2 years. You are committed to selling 500 bikes annually. When the economy is strong you can sell at full price, but you will need to apply different levels of discounts depending on the economy. Option 1: Preassembled bike profit ranges from $500 in a strong economy, $425 if the economy is flat and $200 when weak. 500 bikes each in 2023 and 2024. Option 2: You will buy components and assemble them yourself. You need to invest $100,000 in remodeling a space to do the work; however, earn $50 more profit for each bike ($550, $475, and $250). (Same volume as above) What do you recommend? Use a decision tree to explain which option is the most profitable after 2 years.
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- You are an owner of a local coffee shop in East Saint John, and are competing with Starbucks. You charge the same as at Starbucks for regular coffee. Due to supply chain issues in pandemic, supplier you buy coffee beans from has increased the price by % 20. Due to your small profit margin, you need to increase the price of the coffee. Due to nature of your market, you are concerned about the consequences of an open price increase. You doubt that that Starbuck's will increase the price. Articulate three different price-increase strategies that will address your concerns and explain how they might work.You would like to buy a house that is currently on the market at $85,000, but youcannot afford it right now. However, you think that you would be able to buy it after 4years. If the expected inflation rate as applied to the price of this house is 5% per year,what is its expected price after four years?Benefits and Costs of Buying vs. Renting Reem & Kareem are trying to decide whether to rent or purchase housing. Reem favors buying and Kareem leans toward renting, and both seem able to justify their particular choice. Reem thinks that the tax advantages are a very good reason for buying. Kareem, however, believes that cash flow is so much better when renting. See whether you can help them make their decision. Does the home buyer enjoy tax advantages? Explain. Discuss Kareem’s belief that cash flow is better with renting. Suggest some reasons why Reem might consider renting rather than purchasing housing. Suggest some reasons why Kareem might consider buying rather than renting housing. Is there a clear-cut basis for deciding whether to rent or buy housing? Explain why or why not.
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