Tree Co is considering employing a sales manager. Market research has shown that a good sales manager can increase profit by 30%, an average one by 20% and a poor one by 10%. Experience has shown that the company has attracted a good sales manager 35% of the time, an average one 45% of the time and a poor one 20% of the time. The company’s normal profits are $180,000 per annum and the sales manager’s salary would be $40,000 per annum. Based on the expected value criterion, which of the following represents the correct advice which Tree Co should be given?
A、Do not employ a sales manager as profits would be expected to fall by $1,300
B、Employ a sales manager as profits will increase by $38,700
C、Employ a sales manager as profits are expected to increase by $100
D、Do not employ a sales manager as profits are expected to fall by $39,900
A、Do not employ a sales manager as profits would be expected to fall by $1,300
B、Employ a sales manager as profits will increase by $38,700
C、Employ a sales manager as profits are expected to increase by $100
D、Do not employ a sales manager as profits are expected to fall by $39,900
【参考答案及解析】
New profit figures before salary paid: Good manager: $180,000 × 1.3 = $234,000 Average manager: $180,000 × 1.2 = $216,000 Poor: $180,000 x 1.1 = $198,000 EV of profits = (0.35 × $234,000) + (0.45 × $216,000) + (0.2 × $198,000) = $81,900 + $97,200 + $39,600 = $218,700 Deduct salary cost and EV with manager = $178,700 Therefore do not employ manager as profits will fall by $1,300.
New profit figures before salary paid: Good manager: $180,000 × 1.3 = $234,000 Average manager: $180,000 × 1.2 = $216,000 Poor: $180,000 x 1.1 = $198,000 EV of profits = (0.35 × $234,000) + (0.45 × $216,000) + (0.2 × $198,000) = $81,900 + $97,200 + $39,600 = $218,700 Deduct salary cost and EV with manager = $178,700 Therefore do not employ manager as profits will fall by $1,300.