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Saturday, January 16, 2021

Case Study: Medi Store

 Case study Medi Store 

Decision tree diagram case study


Mr. Novid owns a  medium-sized   Medi Store(MS) in Mumbai, India. The store is known for its excellent service round the clock, home delivery of medicines, and a huge stock of all essential medicines.

Mr. Novid has a very good relationship with medicines suppliers and hence, the stock is replenished well in advance to avoid the client’s dissatisfaction. Novid has an annual contract with some local private hospitals. Though the profit margin is less, this contract gives him good cash flow.

The store has been very profitable for the past 3 years. Novid is thinking of expanding the store’s activities.

Novid is considering the following options. The estimated cost of each individual option and expected  profit ( loss) for each option  are given below:

Options

Cost ($)

Probability of Low revenue, medium revenue, and high revenue and expected revenue.

Low revenue

30 %

Medium revenue

40 %

High revenue

30 %

Option 1: Expansion of the current store.

$ 2 m

$ 3m

$ 5m

$ 8m

Option 2: Open a new store in other part of Mumbai.

$5 m

$ 3.5m

$ 6 m

$ 11m

Option 3: Acquire Medi Plus (a small store).

$ 8m

$ 4m

$ 6m

$ 10m

Option 4:  Enter into a joint venture with Alfa Medicals to supply medicines to some private hospitals in Bangalore, and Chennai.

$ 2m

($2m)

$ 8m

12 m

 

a)      With reference to Medi Store, explain the term ‘external growth’.

[2marks]

b)      Construct a decision tree and calculate the predicted outcome for each expansion option of Mr Novid. (show all your workings)

 

[8 marks]

c)      Based on your calculation (Question b), briefly comment on the most financially profitable option for Novid.

 

[2 marks]

d)      Identify and explain two advantages and two disadvantages of option 4 (Joint venture)

 

[8 marks]


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