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Answer the questions based on the following information :
Rahul is sales manager of XYZ Computers Ltd. and looks after Delhi market. The company sells laptops in India. He is currently trying to select a distributor for coming five years. The distributor ensures that the products are accessible to the customers in the market. Market share of a company depends on the coverage by the distributor. The total profit potential of the entire laptop market in Delhi is Rs. 5 crores in the current year and present value of next four years’ cumulative profit potential is Rs. 15 crores. The first choice for Rahul is to enter into long-term contract with a distributor M/s Jayshree with whom XYZ company has done business in the past, and whose distribution system reaches 55 percent of all potential customers. At the last moment, however, a colleague suggests Rahul to consider signing a oneyear contract with other distributors. Distributors M/s Bola and M/s James are willing to be partner with Dubin. Although a year ago M/s Bola’s and M/s James’s coverage reached only 40 and 25 percent of customers respectively, they claim to have invested heavily in distribution resources and now expect to be able to reach 60 percent and 75 percent of customers respectively. The probability of M/s Bola’s claim and M/s James’s claim to be true is 0.60 and 0.20 respectively. The knowledge about distributors’ coverage will evolve over time. The assumption is that the true level of coverage offered by the new distributors could be discovered, with certainty, through a one-year trail, and this trail will reveal exactly one of the two levels of coverage: for example in case of M/s Bola – 40 percent (as it was last year) or 60 percent (as claimed). In addition, it is also assumed that whatever the coverage is for both distributors, it will not change over time. Rahul narrows down on three choices, which are as follows:
Choice 1. Give a five year contract to the familiar distributor M/s Jayshree. 
Choice 2. Give a one year contract to the new distributor M/s Bola, and base next year’s decision to renew contract with M/s Bola on observed coverage for next four years or enter into a four years' contract with M/s Jayshree. 
Choice 3. Give a one-year contract to the new distributor M/s James, and base next year’s decision to renew contract with M/s James on observed coverage for next four years or enter into a four years contract with M/s Jayshree.. 
Q. The expected present value of the five years cumulative profit with choice 3 is: 
  • a)
    Rs. 12.7 crores
  • b)
    Rs. 10.6 crores
  • c)
    Rs. 11.7 crores
  • d)
    None of the above
Correct answer is option 'B'. Can you explain this answer?
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Answer the questions based on the following information :Rahul is sale...
We are left with 3 choices. 
Choice 1: 
The first choice is to give the contract to M/S Jayshree. In this case, we know that Jayshree's market reach is 55%. It has been given that the total profit potential is 5 crores in the present year and 15 crores in the next 4 years. Therefore, the expected value of profit earned for choice 1 is 0.55*(5+15) = Rs.11 crore.
Choice 2: 
Give the contract to M/s Bola for one year and based on the performance, renew the contract with him for the next 4 years or give M/S Jayshree the contract for the next 4 years.
Let us assume that M/S Bola retains the contract for all 5 years. Rahul will renew the contract only if M/S Bola's claim that their market reach is 60% is true. The probability of the claim being true is 0.6. 
Therefore, the EV of return if M/S Bola bags the contract for all 5 years = 0.6*0.6*(5+15) = Rs. 7.2 crores. 
Let us assume that M/S Bola's claim is false. The probability of the claim being false is 1-0.6 = 0.4. Now, if the claim is false, Rahul will terminate the contract by the end of the year and will partner with M/S Jayshree for the next 4 years. Also, we have historic data that M/S Bola reaches 40% of the customers. Even if the claim is false, the laptops will reach 40% of the customers in the first year and 55% of the customers from the second year (Since M/S Jayshree will bag the contract). 
Therefore, the EV of profit in this case is 0.4*0.4*5+0.4*0.55*15 = 0.8 + 3.3 = Rs.4.1 crores. Therefore, the total EV if M/S Bola bags the contract the first year is 7.2+4.1 = Rs.11.3 crores. 
Choice 3: 
Give the contract to M/s James for one year and based on the performance, renew the contract with him for the next 4 years or give M/S Jayshree the contract for the next 4 years. 
Let us assume that M/S James retains the contract for all 5 years. Rahul will renew the contract only if M/S Jame's claim that their market reach is 75% is true. The probability of the claim being true is 0.2. 
Therefore, the EV of return if M/S James bags the contract for all 5 years = 0.2*0.75*(5+15) = Rs. 3 crores. 
Let us assume that M/S James's claim is false. The probability of the claim being false is 1-0.2 = 0.8. 
Now, if the claim is false, Rahul will terminate the contract by the end of the year and will partner with M/S Jayshree for the next 4 years. Also, we have historic data that M/S James reaches 25% of the customers. Even if the claim is false, the laptops will reach 25% of the customers in the first year and 55% of the customers from the second year (Since M/S Jayshree will bag the contract). 
Therefore, the EV of profit in this case is 0.8*0.25*5+0.8*0.55*15 = 1 + 6.6 = Rs.7.6 crores. 
Therefore, the total EV if M/S Bola bags the contract the first year is 3+7.6 = Rs.10.6 crores. 
EV of choice 1 = Rs. 11 crores 
EV of choice 2 = Rs. 11.3 crores 
EV of choice 3 = Rs. 10.6 crores 
The expected value of choice 3 is Rs.10.6 crores. Therefore, option B is the right answer. 
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Answer the questions based on the following information :Rahul is sales manager of XYZ Computers Ltd. and looks after Delhi market. The company sells laptops in India. He is currently trying to select a distributor for coming five years. The distributor ensures that the products are accessible to the customers in the market. Market share of a company depends on the coverage by the distributor. The total profit potential of the entire laptop market in Delhi is Rs. 5 crores in the current year and present value of next four years’ cumulative profit potential is Rs. 15 crores. The first choice for Rahul is to enter into long-term contract with a distributor M/s Jayshree with whom XYZ company has done business in the past, and whose distribution system reaches 55 percent of all potential customers. At the last moment, however, a colleague suggests Rahul to consider signing a oneyear contract with other distributors. Distributors M/s Bola and M/s James are willing to be partner with Dubin. Although a year ago M/s Bola’s and M/s James’s coverage reached only 40 and 25 percent of customers respectively, they claim to have invested heavily in distribution resources and now expect to be able to reach 60 percent and 75 percent of customers respectively. The probability of M/s Bola’s claim and M/s James’s claim to be true is 0.60 and 0.20 respectively. The knowledge about distributors’ coverage will evolve over time. The assumption is that the true level of coverage offered by the new distributors could be discovered, with certainty, through a one-year trail, and this trail will reveal exactly one of the two levels of coverage: for example in case of M/s Bola – 40 percent (as it was last year) or 60 percent (as claimed). In addition, it is also assumed that whatever the coverage is for both distributors, it will not change over time. Rahul narrows down on three choices, which are as follows:Choice 1. Give a five year contract to the familiar distributor M/s Jayshree.Choice 2. Give a one year contract to the new distributor M/s Bola, and base next year’s decision to renew contract with M/s Bola on observed coverage for next four years or enter into a four years contract with M/s Jayshree.Choice 3. Give a one-year contract to the new distributor M/s James, and base next year’s decision to renew contract with M/s James on observed coverage for next four years or enter into a four years contract with M/s Jayshree..Q. The expected present value of the five years cumulative profit with choice 3 is:a)Rs. 12.7 croresb)Rs. 10.6 croresc)Rs. 11.7 croresd)None of the aboveCorrect answer is option 'B'. Can you explain this answer?
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Answer the questions based on the following information :Rahul is sales manager of XYZ Computers Ltd. and looks after Delhi market. The company sells laptops in India. He is currently trying to select a distributor for coming five years. The distributor ensures that the products are accessible to the customers in the market. Market share of a company depends on the coverage by the distributor. The total profit potential of the entire laptop market in Delhi is Rs. 5 crores in the current year and present value of next four years’ cumulative profit potential is Rs. 15 crores. The first choice for Rahul is to enter into long-term contract with a distributor M/s Jayshree with whom XYZ company has done business in the past, and whose distribution system reaches 55 percent of all potential customers. At the last moment, however, a colleague suggests Rahul to consider signing a oneyear contract with other distributors. Distributors M/s Bola and M/s James are willing to be partner with Dubin. Although a year ago M/s Bola’s and M/s James’s coverage reached only 40 and 25 percent of customers respectively, they claim to have invested heavily in distribution resources and now expect to be able to reach 60 percent and 75 percent of customers respectively. The probability of M/s Bola’s claim and M/s James’s claim to be true is 0.60 and 0.20 respectively. The knowledge about distributors’ coverage will evolve over time. The assumption is that the true level of coverage offered by the new distributors could be discovered, with certainty, through a one-year trail, and this trail will reveal exactly one of the two levels of coverage: for example in case of M/s Bola – 40 percent (as it was last year) or 60 percent (as claimed). In addition, it is also assumed that whatever the coverage is for both distributors, it will not change over time. Rahul narrows down on three choices, which are as follows:Choice 1. Give a five year contract to the familiar distributor M/s Jayshree.Choice 2. Give a one year contract to the new distributor M/s Bola, and base next year’s decision to renew contract with M/s Bola on observed coverage for next four years or enter into a four years contract with M/s Jayshree.Choice 3. Give a one-year contract to the new distributor M/s James, and base next year’s decision to renew contract with M/s James on observed coverage for next four years or enter into a four years contract with M/s Jayshree..Q. The expected present value of the five years cumulative profit with choice 3 is:a)Rs. 12.7 croresb)Rs. 10.6 croresc)Rs. 11.7 croresd)None of the aboveCorrect answer is option 'B'. Can you explain this answer? for CAT 2024 is part of CAT preparation. The Question and answers have been prepared according to the CAT exam syllabus. Information about Answer the questions based on the following information :Rahul is sales manager of XYZ Computers Ltd. and looks after Delhi market. The company sells laptops in India. He is currently trying to select a distributor for coming five years. The distributor ensures that the products are accessible to the customers in the market. Market share of a company depends on the coverage by the distributor. The total profit potential of the entire laptop market in Delhi is Rs. 5 crores in the current year and present value of next four years’ cumulative profit potential is Rs. 15 crores. The first choice for Rahul is to enter into long-term contract with a distributor M/s Jayshree with whom XYZ company has done business in the past, and whose distribution system reaches 55 percent of all potential customers. At the last moment, however, a colleague suggests Rahul to consider signing a oneyear contract with other distributors. Distributors M/s Bola and M/s James are willing to be partner with Dubin. Although a year ago M/s Bola’s and M/s James’s coverage reached only 40 and 25 percent of customers respectively, they claim to have invested heavily in distribution resources and now expect to be able to reach 60 percent and 75 percent of customers respectively. The probability of M/s Bola’s claim and M/s James’s claim to be true is 0.60 and 0.20 respectively. The knowledge about distributors’ coverage will evolve over time. The assumption is that the true level of coverage offered by the new distributors could be discovered, with certainty, through a one-year trail, and this trail will reveal exactly one of the two levels of coverage: for example in case of M/s Bola – 40 percent (as it was last year) or 60 percent (as claimed). In addition, it is also assumed that whatever the coverage is for both distributors, it will not change over time. Rahul narrows down on three choices, which are as follows:Choice 1. Give a five year contract to the familiar distributor M/s Jayshree.Choice 2. Give a one year contract to the new distributor M/s Bola, and base next year’s decision to renew contract with M/s Bola on observed coverage for next four years or enter into a four years contract with M/s Jayshree.Choice 3. Give a one-year contract to the new distributor M/s James, and base next year’s decision to renew contract with M/s James on observed coverage for next four years or enter into a four years contract with M/s Jayshree..Q. The expected present value of the five years cumulative profit with choice 3 is:a)Rs. 12.7 croresb)Rs. 10.6 croresc)Rs. 11.7 croresd)None of the aboveCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for CAT 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Answer the questions based on the following information :Rahul is sales manager of XYZ Computers Ltd. and looks after Delhi market. The company sells laptops in India. He is currently trying to select a distributor for coming five years. The distributor ensures that the products are accessible to the customers in the market. Market share of a company depends on the coverage by the distributor. The total profit potential of the entire laptop market in Delhi is Rs. 5 crores in the current year and present value of next four years’ cumulative profit potential is Rs. 15 crores. The first choice for Rahul is to enter into long-term contract with a distributor M/s Jayshree with whom XYZ company has done business in the past, and whose distribution system reaches 55 percent of all potential customers. At the last moment, however, a colleague suggests Rahul to consider signing a oneyear contract with other distributors. Distributors M/s Bola and M/s James are willing to be partner with Dubin. 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Give a one year contract to the new distributor M/s Bola, and base next year’s decision to renew contract with M/s Bola on observed coverage for next four years or enter into a four years contract with M/s Jayshree.Choice 3. Give a one-year contract to the new distributor M/s James, and base next year’s decision to renew contract with M/s James on observed coverage for next four years or enter into a four years contract with M/s Jayshree..Q. The expected present value of the five years cumulative profit with choice 3 is:a)Rs. 12.7 croresb)Rs. 10.6 croresc)Rs. 11.7 croresd)None of the aboveCorrect answer is option 'B'. Can you explain this answer?.
Solutions for Answer the questions based on the following information :Rahul is sales manager of XYZ Computers Ltd. and looks after Delhi market. The company sells laptops in India. He is currently trying to select a distributor for coming five years. The distributor ensures that the products are accessible to the customers in the market. Market share of a company depends on the coverage by the distributor. The total profit potential of the entire laptop market in Delhi is Rs. 5 crores in the current year and present value of next four years’ cumulative profit potential is Rs. 15 crores. The first choice for Rahul is to enter into long-term contract with a distributor M/s Jayshree with whom XYZ company has done business in the past, and whose distribution system reaches 55 percent of all potential customers. At the last moment, however, a colleague suggests Rahul to consider signing a oneyear contract with other distributors. Distributors M/s Bola and M/s James are willing to be partner with Dubin. Although a year ago M/s Bola’s and M/s James’s coverage reached only 40 and 25 percent of customers respectively, they claim to have invested heavily in distribution resources and now expect to be able to reach 60 percent and 75 percent of customers respectively. The probability of M/s Bola’s claim and M/s James’s claim to be true is 0.60 and 0.20 respectively. The knowledge about distributors’ coverage will evolve over time. The assumption is that the true level of coverage offered by the new distributors could be discovered, with certainty, through a one-year trail, and this trail will reveal exactly one of the two levels of coverage: for example in case of M/s Bola – 40 percent (as it was last year) or 60 percent (as claimed). In addition, it is also assumed that whatever the coverage is for both distributors, it will not change over time. Rahul narrows down on three choices, which are as follows:Choice 1. Give a five year contract to the familiar distributor M/s Jayshree.Choice 2. Give a one year contract to the new distributor M/s Bola, and base next year’s decision to renew contract with M/s Bola on observed coverage for next four years or enter into a four years contract with M/s Jayshree.Choice 3. Give a one-year contract to the new distributor M/s James, and base next year’s decision to renew contract with M/s James on observed coverage for next four years or enter into a four years contract with M/s Jayshree..Q. The expected present value of the five years cumulative profit with choice 3 is:a)Rs. 12.7 croresb)Rs. 10.6 croresc)Rs. 11.7 croresd)None of the aboveCorrect answer is option 'B'. Can you explain this answer? in English & in Hindi are available as part of our courses for CAT. Download more important topics, notes, lectures and mock test series for CAT Exam by signing up for free.
Here you can find the meaning of Answer the questions based on the following information :Rahul is sales manager of XYZ Computers Ltd. and looks after Delhi market. The company sells laptops in India. He is currently trying to select a distributor for coming five years. The distributor ensures that the products are accessible to the customers in the market. Market share of a company depends on the coverage by the distributor. The total profit potential of the entire laptop market in Delhi is Rs. 5 crores in the current year and present value of next four years’ cumulative profit potential is Rs. 15 crores. The first choice for Rahul is to enter into long-term contract with a distributor M/s Jayshree with whom XYZ company has done business in the past, and whose distribution system reaches 55 percent of all potential customers. At the last moment, however, a colleague suggests Rahul to consider signing a oneyear contract with other distributors. Distributors M/s Bola and M/s James are willing to be partner with Dubin. Although a year ago M/s Bola’s and M/s James’s coverage reached only 40 and 25 percent of customers respectively, they claim to have invested heavily in distribution resources and now expect to be able to reach 60 percent and 75 percent of customers respectively. The probability of M/s Bola’s claim and M/s James’s claim to be true is 0.60 and 0.20 respectively. The knowledge about distributors’ coverage will evolve over time. The assumption is that the true level of coverage offered by the new distributors could be discovered, with certainty, through a one-year trail, and this trail will reveal exactly one of the two levels of coverage: for example in case of M/s Bola – 40 percent (as it was last year) or 60 percent (as claimed). In addition, it is also assumed that whatever the coverage is for both distributors, it will not change over time. Rahul narrows down on three choices, which are as follows:Choice 1. Give a five year contract to the familiar distributor M/s Jayshree.Choice 2. Give a one year contract to the new distributor M/s Bola, and base next year’s decision to renew contract with M/s Bola on observed coverage for next four years or enter into a four years contract with M/s Jayshree.Choice 3. Give a one-year contract to the new distributor M/s James, and base next year’s decision to renew contract with M/s James on observed coverage for next four years or enter into a four years contract with M/s Jayshree..Q. The expected present value of the five years cumulative profit with choice 3 is:a)Rs. 12.7 croresb)Rs. 10.6 croresc)Rs. 11.7 croresd)None of the aboveCorrect answer is option 'B'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of Answer the questions based on the following information :Rahul is sales manager of XYZ Computers Ltd. and looks after Delhi market. The company sells laptops in India. He is currently trying to select a distributor for coming five years. The distributor ensures that the products are accessible to the customers in the market. Market share of a company depends on the coverage by the distributor. The total profit potential of the entire laptop market in Delhi is Rs. 5 crores in the current year and present value of next four years’ cumulative profit potential is Rs. 15 crores. The first choice for Rahul is to enter into long-term contract with a distributor M/s Jayshree with whom XYZ company has done business in the past, and whose distribution system reaches 55 percent of all potential customers. At the last moment, however, a colleague suggests Rahul to consider signing a oneyear contract with other distributors. Distributors M/s Bola and M/s James are willing to be partner with Dubin. Although a year ago M/s Bola’s and M/s James’s coverage reached only 40 and 25 percent of customers respectively, they claim to have invested heavily in distribution resources and now expect to be able to reach 60 percent and 75 percent of customers respectively. The probability of M/s Bola’s claim and M/s James’s claim to be true is 0.60 and 0.20 respectively. The knowledge about distributors’ coverage will evolve over time. The assumption is that the true level of coverage offered by the new distributors could be discovered, with certainty, through a one-year trail, and this trail will reveal exactly one of the two levels of coverage: for example in case of M/s Bola – 40 percent (as it was last year) or 60 percent (as claimed). In addition, it is also assumed that whatever the coverage is for both distributors, it will not change over time. Rahul narrows down on three choices, which are as follows:Choice 1. Give a five year contract to the familiar distributor M/s Jayshree.Choice 2. Give a one year contract to the new distributor M/s Bola, and base next year’s decision to renew contract with M/s Bola on observed coverage for next four years or enter into a four years contract with M/s Jayshree.Choice 3. Give a one-year contract to the new distributor M/s James, and base next year’s decision to renew contract with M/s James on observed coverage for next four years or enter into a four years contract with M/s Jayshree..Q. The expected present value of the five years cumulative profit with choice 3 is:a)Rs. 12.7 croresb)Rs. 10.6 croresc)Rs. 11.7 croresd)None of the aboveCorrect answer is option 'B'. Can you explain this answer?, a detailed solution for Answer the questions based on the following information :Rahul is sales manager of XYZ Computers Ltd. and looks after Delhi market. The company sells laptops in India. He is currently trying to select a distributor for coming five years. The distributor ensures that the products are accessible to the customers in the market. Market share of a company depends on the coverage by the distributor. The total profit potential of the entire laptop market in Delhi is Rs. 5 crores in the current year and present value of next four years’ cumulative profit potential is Rs. 15 crores. The first choice for Rahul is to enter into long-term contract with a distributor M/s Jayshree with whom XYZ company has done business in the past, and whose distribution system reaches 55 percent of all potential customers. At the last moment, however, a colleague suggests Rahul to consider signing a oneyear contract with other distributors. Distributors M/s Bola and M/s James are willing to be partner with Dubin. Although a year ago M/s Bola’s and M/s James’s coverage reached only 40 and 25 percent of customers respectively, they claim to have invested heavily in distribution resources and now expect to be able to reach 60 percent and 75 percent of customers respectively. The probability of M/s Bola’s claim and M/s James’s claim to be true is 0.60 and 0.20 respectively. The knowledge about distributors’ coverage will evolve over time. The assumption is that the true level of coverage offered by the new distributors could be discovered, with certainty, through a one-year trail, and this trail will reveal exactly one of the two levels of coverage: for example in case of M/s Bola – 40 percent (as it was last year) or 60 percent (as claimed). In addition, it is also assumed that whatever the coverage is for both distributors, it will not change over time. Rahul narrows down on three choices, which are as follows:Choice 1. Give a five year contract to the familiar distributor M/s Jayshree.Choice 2. Give a one year contract to the new distributor M/s Bola, and base next year’s decision to renew contract with M/s Bola on observed coverage for next four years or enter into a four years contract with M/s Jayshree.Choice 3. Give a one-year contract to the new distributor M/s James, and base next year’s decision to renew contract with M/s James on observed coverage for next four years or enter into a four years contract with M/s Jayshree..Q. The expected present value of the five years cumulative profit with choice 3 is:a)Rs. 12.7 croresb)Rs. 10.6 croresc)Rs. 11.7 croresd)None of the aboveCorrect answer is option 'B'. Can you explain this answer? has been provided alongside types of Answer the questions based on the following information :Rahul is sales manager of XYZ Computers Ltd. and looks after Delhi market. The company sells laptops in India. He is currently trying to select a distributor for coming five years. The distributor ensures that the products are accessible to the customers in the market. Market share of a company depends on the coverage by the distributor. The total profit potential of the entire laptop market in Delhi is Rs. 5 crores in the current year and present value of next four years’ cumulative profit potential is Rs. 15 crores. The first choice for Rahul is to enter into long-term contract with a distributor M/s Jayshree with whom XYZ company has done business in the past, and whose distribution system reaches 55 percent of all potential customers. At the last moment, however, a colleague suggests Rahul to consider signing a oneyear contract with other distributors. Distributors M/s Bola and M/s James are willing to be partner with Dubin. Although a year ago M/s Bola’s and M/s James’s coverage reached only 40 and 25 percent of customers respectively, they claim to have invested heavily in distribution resources and now expect to be able to reach 60 percent and 75 percent of customers respectively. The probability of M/s Bola’s claim and M/s James’s claim to be true is 0.60 and 0.20 respectively. The knowledge about distributors’ coverage will evolve over time. The assumption is that the true level of coverage offered by the new distributors could be discovered, with certainty, through a one-year trail, and this trail will reveal exactly one of the two levels of coverage: for example in case of M/s Bola – 40 percent (as it was last year) or 60 percent (as claimed). In addition, it is also assumed that whatever the coverage is for both distributors, it will not change over time. Rahul narrows down on three choices, which are as follows:Choice 1. Give a five year contract to the familiar distributor M/s Jayshree.Choice 2. Give a one year contract to the new distributor M/s Bola, and base next year’s decision to renew contract with M/s Bola on observed coverage for next four years or enter into a four years contract with M/s Jayshree.Choice 3. Give a one-year contract to the new distributor M/s James, and base next year’s decision to renew contract with M/s James on observed coverage for next four years or enter into a four years contract with M/s Jayshree..Q. The expected present value of the five years cumulative profit with choice 3 is:a)Rs. 12.7 croresb)Rs. 10.6 croresc)Rs. 11.7 croresd)None of the aboveCorrect answer is option 'B'. Can you explain this answer? theory, EduRev gives you an ample number of questions to practice Answer the questions based on the following information :Rahul is sales manager of XYZ Computers Ltd. and looks after Delhi market. The company sells laptops in India. He is currently trying to select a distributor for coming five years. The distributor ensures that the products are accessible to the customers in the market. Market share of a company depends on the coverage by the distributor. The total profit potential of the entire laptop market in Delhi is Rs. 5 crores in the current year and present value of next four years’ cumulative profit potential is Rs. 15 crores. The first choice for Rahul is to enter into long-term contract with a distributor M/s Jayshree with whom XYZ company has done business in the past, and whose distribution system reaches 55 percent of all potential customers. At the last moment, however, a colleague suggests Rahul to consider signing a oneyear contract with other distributors. Distributors M/s Bola and M/s James are willing to be partner with Dubin. Although a year ago M/s Bola’s and M/s James’s coverage reached only 40 and 25 percent of customers respectively, they claim to have invested heavily in distribution resources and now expect to be able to reach 60 percent and 75 percent of customers respectively. The probability of M/s Bola’s claim and M/s James’s claim to be true is 0.60 and 0.20 respectively. The knowledge about distributors’ coverage will evolve over time. The assumption is that the true level of coverage offered by the new distributors could be discovered, with certainty, through a one-year trail, and this trail will reveal exactly one of the two levels of coverage: for example in case of M/s Bola – 40 percent (as it was last year) or 60 percent (as claimed). In addition, it is also assumed that whatever the coverage is for both distributors, it will not change over time. Rahul narrows down on three choices, which are as follows:Choice 1. Give a five year contract to the familiar distributor M/s Jayshree.Choice 2. Give a one year contract to the new distributor M/s Bola, and base next year’s decision to renew contract with M/s Bola on observed coverage for next four years or enter into a four years contract with M/s Jayshree.Choice 3. Give a one-year contract to the new distributor M/s James, and base next year’s decision to renew contract with M/s James on observed coverage for next four years or enter into a four years contract with M/s Jayshree..Q. The expected present value of the five years cumulative profit with choice 3 is:a)Rs. 12.7 croresb)Rs. 10.6 croresc)Rs. 11.7 croresd)None of the aboveCorrect answer is option 'B'. Can you explain this answer? tests, examples and also practice CAT tests.
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