Task
• individual• Submission format: pdf or doc file
Formalities:
• Wordcount:
Task
• individual• Submission format: pdf or doc file
Formalities:
• Wordcount: no more than 2000 words• Cover, Table of Contents, References and Appendix are excluded of the total wordcount.• Font: Arial 12,5 pts. • Text alignment: Justified.• The in-text References and the Bibliography have to be in Harvard’s citation style.
CASE INSTRUCTIONS:
Case Study: Expanding Business Operations in Barcelona
Company XYZ, a local coffee shop chain based in Barcelona, is considering expanding its operations by opening a new flagship store. The goal is to increase brand visibility and market share in a competitive environment. The decision involves several uncertainties, and the company’s management must weigh different options carefully using a decision tree.
The Decision:
Should XYZ proceed with opening the new store?
Key Considerations:
The management identifies two major uncertainties that will influence the decision:
First is the state of the economy:
Strong Economy: There’s a 60% chance the economy will be strong, leading to increased consumer spending.
Weak Economy: There’s a 40% chance the economy will weaken, which could negatively impact consumer spending.
Second is the demand for premium coffee:
High Demand: A 70% chance that there will be strong demand for premium coffee, benefiting XYZ’s upscale offerings.
Low Demand: A 30% chance that demand for premium coffee will be low, potentially reducing the profitability of XYZ’s premium products.
Demand forecasts are the following:
The expected demand for each scenario is projected as follows (in terms of annual revenue):
• Strong Economy & High Demand: €1.2 million in annual revenue.• Strong Economy & Low Demand: €800,000 in annual revenue.• Weak Economy & High Demand: €700,000 in annual revenue.• Weak Economy & Low Demand: €400,000 in annual revenue.
Costs:
• The upfront investment to open the new store is €500,000.• Maintaining the current operations incurs no additional cost
Decision Tree Analysis:
Management needs to assess whether to proceed with opening the new store or just maintain current operations. For each scenario, students should use the probabilities and revenue projections to calculate the expected value of each option and recommend the best course of action.
You should perform the following tasks:
1. Create a decision tree that incorporates the two sources of uncertainty and their respective probabilities.2. Calculate the expected value for each branch of the decision tree.3. Based on the analysis, recommend whether XYZ should proceed with the expansion or not.
Submission: 26th of January, Time 23:59.
Weight: This task is 60% of your total grade for this subject.
It assesses the following learning outcomes:
• Outcome 1: Ability to describe and analyze the decision problem.• Outcome 2: Apply instruments of Decision Analysis to real-life situations.