Question

Note: Plesae I want a clear and justified answer

Trentware plc is a medium-sized pottery manufacturer which is based in the English Potteries. The company has fared badly over the last 10 years, mainly as a result of Japanese competition, and recently this has led to major changes at the senior management level. The new managing director is determined to increase the company’s market share, and you are a member of the ambitious new management team which intends to extend the company’s range of tableware designs. Trentware’s immediate objective is to launch a new high-quality product for the Christmas market in 18 months’ time. Over 30 possible designs have been subjected to both technical analysis (to assess their production implications) and extensive market research. As a result of this analysis, the number of potential designs has now been winnowed down to six. Some of these designs are thought to offer more risk than others because of changes in fashion, similarities to competing products and possible production problems. Now one design has to be selected from the six remaining. Risk analysis has been applied to each of these six designs and some of the main results are given below:

Design	1	2	3	4	5	6
Mean NPV ($000)	50	21	20	46	-49	60
Standard Deviation of NPV ($000)	3	2	29	8	31	30

(a) You have been asked to explain to a colleague, who is unfamiliar with risk analysis, how these results are likely to have been derived. Draft some notes for your colleague and include in your notes an evaluation of the usefulness of the technique.

(b) Compare the risk analysis results for the six designs and discuss how a decision could be made between them.

Answer 1

	Requirement
a	Here it is seen that Trentware plcs which has done fairly bad over the last 10 years because of Japanese competition is
	evaluating the new launch of a high quality product for Christmas Market in the next 18 months.
	Since I have been appointed by the new higher management to extend the company range of tableware designs and my collegues are
	not familiar with the risk analysis techiniques to be applied for in the given case.In the below case it is seen
	that there is a high variablity of risks in the mean NPV of the six designs which has been given below.
	The best possible measure in this case is the Coefficient of Variation which represents the ratio of the standard deviation to mean
	of the above six designs .
	It is useful statistics analysis for comparing the degree of variation from one data series to another when the means of the NPV of the
	six designs are drastically different from each other.
	Calculation of the Coefficient of Variation
	Design	1	2	3	4	5	6	`
	Particulars
	Mean of NPVs-000	50	21	20	46	-49	60
	Std Deviation of NPV's -000	3	2	29	8	31	30
	Coefficient of Variation
	Std Deviation of NPV's/Mean of NPV's	0.06	0.095238	1.45	0.173913	-0.63265	0.5
b	The coefficient of variation is helpful when using the risk/reward ratio to select project . For example, an investor who is risk-averse may want to consider assets with a historically low degree of volatility and a high degree of return, in relation to the overall market or its industry. Conversely, risk-seeking investors may look to invest in assets with a historically high degree of volatility.
	In the given case it is seen that the degree of volatility is very high in case of designs3,4 ,6 which means that Trentware plcs can invest in these designs
	which offer a high degree of volatility but the risk rward ratio will be better for design 4 which offers a better trade off than the other designs .